Date: 22/07/2004
Source: KwaZulu-Natal Provincial Government
Title: M Mabuyakhulu: KwaZulu-Natal Treasury Prov Budget Vote 2004/2005
KWAZULU-NATAL PROVINCIAL TREASURY: BUDGET POLICY SPEECH DELIVERED BY THE MINISTER OF FINANCE AND ECONOMIC DEVELOPMENT, MR MICHAEL MABUYAKHULU, MPP, 22 July 2004
Chairperson and Honourable Members. It is my great privilege to introduce the debate on Vote 6, Provincial Treasury.
Honourable Members will appreciate that the forthcoming MTEF period (2004/05 to 2006/07) will prove extremely challenging for the Department. On the one hand, the challenge will be to consolidate and build on the various financial management reforms implemented in the last five years, while on the other the Department will be driving a number of exciting new initiatives of major significance for the province. There is no question however that the Department has the capacity, the skills and the determination to successfully implement the new programmes and functions with which it has been entrusted, and in so doing succeed in keeping the Province of KwaZulu-Natal at the forefront of financial management best practice in the country. What follows is a brief summary of the major challenges and initiatives, which will be the focus of the Department in the next three years. I will also deal with the departmental budget emphasising some important areas of our work during the first year of the MTEF.
Budget management and planning issues
During the financial years 2002/03 and 2003/04, the Department spent a great deal of time and effort in advising and assisting departments in establishing appropriate integrated strategic management and reporting frameworks. This was done with the ongoing assistance of the National Treasury, which developed uniform programme structures and performance measurement criteria for the major sector departments, which were adopted for the first time in the 2003/04 budget statements. In the latter half of 2003, a major initiative was launched by the National Treasury to roll out a new economic reporting format. This reporting framework brings the public sector in line with internationally accepted Government Finance Statistics (GFS) formats and standards. The new economic reporting format is used for the first time in the 2004/05 provincial budget statements. We will embark on a process of putting the reports through this format during this year. It is our hope that out of this process, we will gain another step towards better linkage between spending, service delivery and planning. A further refinement of the programme and reporting structures will be done in line with the current restructuring of provincial departments, together with the review of the Provincial Growth and Development Strategy.
Performance budgeting
Financial management and budgetary reforms in South Africa have accelerated since the advent of the Public Finance Management Act of 1999 (PFMA). The 2004 reforms bring with them the full implementation of a budgeting system that will ensure that the social contract that Government has with the people of this Province is fully honoured. For its part, the new Government of the Province, through the State of the Province address by the Premier and the Provincial Budget Speech has articulated the vision for the Province and what people can expect from this Government. A key ingredient to the success of this term of office is the ability to quantify the achievements made and report those to this Legislature and to the KwaZulu-Natal populace.
It is imperative therefore, that the Province proceeds immediately with the implementation of a new PFMA-aligned budgeting and financial management system to ensure proper implementation and monitoring of the strategies and business plans of provincial departments. As mentioned in the provincial budget speech the implementation of this system will involve the following three phases:
* Phase 1 - Setting the Budget Structure right
* Phase 2 - Strengthening the institutional capacity for fiscal management
* Phase 3 - Implementation of software for Performance Budgeting System
The important objective of implementing such a system is to ensure that funds allocated to departments are properly motivated and are linked to the achievements of service delivery plans. The time has come to ensure that budgeted funds are linked to outputs and hence outcomes. This taken together with the roll out of the balanced score card system of managing individual and institutional performance, we are assured of a government capable of delivery and whose delivery can be measured with ease.
Infrastructure
Infrastructure planning and monitoring expenditure thereon will also be a main focal point of the Department in the 2004/05 MTEF period and beyond. In line with an increased emphasis on infrastructure and alternative forms of infrastructure service delivery the Department has established an Infrastructure Unit headed by a General Manager. The component is in the process of finalising a Provincial Statement of Infrastructure Needs, which will serve as the basis for the development of a comprehensive, integrated long term infrastructure plan. Among the objectives of the unit is to identify public private partnership opportunities for the delivery of social and economic infrastructure in the province, and assist departments with contract finalisation and implementation arrangements. The unit is also facilitating inter-departmental, inter-sectoral and inter-sphere coordination and cooperation in respect of the planning and delivery of infrastructure. The Departments of Transport and Education have agreed to be the first departments to be put through this thorough process of infrastructure management.
Municipal Finance
The promulgation in February 2004 of the Municipal Finance Management Act (MFMA), No. 56 of 2003, has significant implications for the Department and indeed for the provincial government as a whole. The MFMA came into effect on 1 July 2004. The primary objective of the Act is to reform and modernise financial management practices at local government level, in much the same way as the PFMA, which applied at provincial and national level. In terms of the Act the Department is assigned a number of functions and responsibilities, aimed at ensuring successful implementation of the Act and subsequent compliance by municipalities with the various provisions of the Act - by definition these are new functions and responsibilities, which did not previously fall within the mandate of this Department.
These functions range from administrative tasks such as maintaining a database of banking details of municipalities, to the more demanding tasks of active monitoring of municipal budgets and provision of financial management capacity building and support. More specifically, the Department will be expected to monitor the revenue and expenditure of municipalities on a monthly, quarterly, bi-annual and annual basis; assist municipalities in the preparation of annual budgets; monitor compliance with the MFMA, and verify and assess the criteria of a municipality's Financial Recovery Plan where and when required. An important challenge will be to capacitate municipalities to implement the range of financial management reforms required by the Act.
We are excited by these challenges not only because they present us with an opportunity to learn new things that are in the municipal sphere of government, but also because we strongly believe reforms in the municipal sphere of government are necessary. It is therefore exciting to be part of finding solutions and contributing to improved delivery in the government sphere that is closest to the people.
Procurement issues
In the field of procurement, although considerable improvements have been made to the provincial procurement system in recent years, the challenge remains to increase the effectiveness and impact of the provincial procurement spend, particularly in respect of further advancing Black economic Empowerment through preferential procurement measures. My emphasis will be in ensuring that in spending the provincial budget we unashamedly ensure that Black Economic Empowerment is advanced. As proven by such departments as Transport, we can use state procurement to accelerate the delivery of Black Economic Empowerment.
In January 2004 the National Treasury issued regulations in terms of the PFMA providing a framework for the introduction of a Supply Chain Management System (SCM) in the public sector. We have almost completed orientating provincial departments on the advantages and necessity of introducing such a system. This is a medium term project, which we will phase in over the two financial years beginning with the current financial year.
A Supply Chain Management system includes features of demand management, acquisitioning management, logistics management and disposal management. The SCM system will need to integrate the Financial Management system, asset management system and an e-Procurement system. Presently, the Supply Chain Management Office manages the Suppliers Database, which is undergoing substantial upgrading which will vastly increase its value as a tool in acquisition management. The impact of SCM on the Province is such that it will require a thorough revision of the existing procurement system and legislation - a repeal of the KwaZulu-Natal Procurement Act, 2001, will inter ala be necessary. It will also entail an overhaul of the partially implemented Provisioning Administration System. Re-structuring of the traditional procurement and provisioning offices in all Departments will be necessary, as well as re-training of procurement officials.
It is our stated intention that by the end of the implementation phase, we will have a fully-fledged e-Procurement system. It is anticipated that the establishing of a SCM system will lead to measurable improvements in financial management, cost effectiveness and departmental service delivery, with all sectors of KwaZulu-Natal society benefiting on an equal basis.
Accounting control issues
During this financial year we will "bed-down" the conversion to the new Basic Accounting System (BAS). The process of converting from one system (FMS) to another has required extensive training. Process realignment and a comprehensive infrastructure review were required to ensure that the BAS would operate effectively. We are very grateful to the Departments for the important role in undertaking their specific responsibilities and have thereby ensured the success of the conversion. The last two departments to be converted, owing to their size and scale of decentralisation, were the departments of Health and Education, which went on line on 1 April 2004. As with any new system of this size and complexity, there a number of teething problems which need to be addressed, but there can be no question that BAS has already brought about specific benefits to the province in terms of on-line availability of information and direct payments to suppliers.
The second major initiative being managed under the auspices of the accounting control division in the Department is the establishing of a transversal asset management system for use throughout the provincial government. A tender has recently been awarded for the development and implementation of a comprehensive asset management system, which will include the population and maintenance of a provincial asset register. The project is intended to commence with the provincial asset count, which will ensure that the province has a record of all assets with their respective value. The system will furthermore provide management information, which will ensure adequate and accurate budgeting for both capital expenditure and maintenance costs and effective and efficient allocations and utilisation of provincial assets.
This will pave the way for the implementation of asset management in its true sense throughout the provincial government. This includes acquisition assessments, repairs and maintenance management, replacements cycles and disposal reviews, all of which must be fully evaluated and accounted for in the strategic and procurement plans and MTEF submissions of provincial departments. As was the case in several other previous financial management reforms, the asset management system in KwaZulu-Natal will be rolled out in 2004 as a pilot project for adoption in the country as a whole.
We are very pleased that the tender of approximately R50 million has been awarded to a consortium that is led by a black accounting firm. This is the beginning of an era where we will commit important and significant transactions to black firms. It is also our expectation that as we do this, the companies, firms and individuals will give of their best in ensuring that the services that government is procuring are provided timely and that we receive the best quality. This is the true meaning of an empowering partnership with the private sector.
During this financial year the Department will move forward with the change from a cash-based to a full accrual accounting system, as envisaged by the PFMA. This, like previous financial management reforms, will be a complex and time-consuming exercise, which will of necessity have to be phased in over several years. Government has already begun the transition with the introduction of the Standard Chart of Accounts, additional disclosures on accruals and commitments in the annual financial statements and the implementation of supply chain management principles.
Internal audit issues
In the endeavour to minimise the risks facing the provincial government, the Internal Audit Unit has developed risk management strategies, a fraud prevention plan, and is in the process of developing best practice guides for effective internal control within government.
The Internal Audit Unit's audit strategy strives to achieve two objectives. The first is to improve service delivery operations, both directly through audits of departmental operations and indirectly through improvements in support functions. The second is to make each audit staff member accountable for "doing the right audit, right."
The Internal Audit Unit is a team of skilled personnel dedicated to helping the Provincial Government reach its essential goals and objectives. To this end, the Internal Audit Unit independently conducts activities such as audits, investigations, surveys and special reviews with accuracy, integrity and objectivity working with management in the hope of proactively avoiding problems before they occur.
One of the most critical steps in creating a realm of professionalism within the Internal Audit Unit was the development of the Internal Audit Procedures Manual. Audit, investigations and other reviews are carried out utilising surveys, plans, questionnaires, compliance audit techniques, statistical analyses and other appropriate means considered necessary to achieving stated objectives. All audit staff, including consultants engaged by the Internal Audit Component on audits, carry out their duties in compliance with the standards and code of ethics of the Institute of Internal Auditors and the Public Service Code of Conduct.
The Internal Audit Unit procured and implemented audit software automated tool to enhance efficiencies in providing internal audit services to our clients. Our audit methodology was reviewed and amended to include functionalities of the audit software. Internal auditors at all levels were subjected to extensive training on the audit software and further staff within the unit were identified and trained as super-users to enable the unit to solve problems encountered by staff on their daily function on the software.
The unit finalised Risk Assessments and developed a three-year rolling audit plan and annual audit plan for approval by the Audit Committee. The unit managed to perform and finalise 90% of the planned assignments and 10% of the planned assignments were postponed due to other urgent requests by our clients which had to be given priority.
The unit improved its Performance Management System by the introduction of performance agreements at Audit Supervisor level (Assistant Director) and intensifying performance assessments at all level. This ensured improved management of outputs to our clients and increased responsibility and accountability. The training plan was enhanced by developing training material for an induction course for all new staff members and a leadership course for all managers within the unit.
In order to improve effectiveness and quality of the internal audit function within the province the unit engaged the Institute of Internal Auditors, which is a body that regulates the functioning of internal audits worldwide. Positive results were received from the institute, however deficiencies were also highlighted. The management of the unit has engaged into a rigorous action plan to resolve such weaknesses.
Fraud Prevention Plans for 14 Provincial Government Departments have been developed based on the risk assessments that have been conducted in these Provincial Government Departments. The Unit has also been requested by schedule 3 entities, which are partly funded by Provincial Treasury to conduct risk assessment and develop Fraud Prevention Plan. Two such requests have been attended and the unit is currently attending to other similar requests from similar organisations.
Several workshops and presentations have been conducted and are still continuing creating awareness of fraud and advocating good Corporate Governance. Presentations on Risk Management and Corporate Governance have been done to management of six Provincial Government departments. Requests to conduct these to lower level staff have been received from these departments.
The Unit is currently assisting two Provincial Government Departments in terms of project management in order that the departments can effectively manage their projects.
Fraud prevention is being treated as a high profile issue within the unit. At present the component that deals with fraud investigations and prosecutions is being restructured with a view to expediting investigations and prosecutions. This unit has been structured in a way so as to employ high profile investigators and legal experts to deal with fraud charges brought against officials and persons intent on defrauding government.
The unit completed a total number of 54 investigations. We also took over one of the much-publicised investigations, namely "Operation Cure" which was brought to its logical conclusion. There were a total number of 113 suspects who were arrested and appeared before the court. Of the aforementioned suspects, 25 were suppliers. A significant conviction was where the accused was convicted of 433 counts of corruption and was sentenced to a period of nine years in jail. Another high profile investigation was the much-publicised "Operation Crop". A total number of 46 suspects were arrested and are currently appearing at the regional court in Durban. Of the aforementioned approximately 50% were government officials and the remainder thereof, suppliers.
We have also enhanced our service provision to client departments to extend beyond investigating, to drafting charges for the disciplinary enquiry files with supporting evidentiary material. This makes it very easy for the various Labour Relations components of at our clients' departments to handle disciplinary hearings.
With a view to building much needed capacity in the component, initiatives have been taken to form relationships and seek accreditation to and membership of professional and academic institutions. By way of illustration, the Unit has engaged with the University of Natal to begin offering training programmes that will assist in building the theoretical capacity that is required to work in such an environment.
THE BUDGET FOR THE 2004/05 FINANCIAL YEAR
I will now deal with the budget of the Department for the 2004/05 financial year. For comparative purposes the following table indicates the changes to the department's budget relative to the 2003/04 financial year:
Programme 2003/04
* Adjusted Budget 2003/2004
Transverse Support: 16,994
Budget & Procurement: 24,478
Accounting Control: 118,752
Internal Audit: 30,225
Provincial Growth Fund: 0
TOTAL BUDGET: 190,449
* Budget 2004/2005
Transverse Support: 12,061
Budget & Procurement: 26,273
Accounting Control: 86,293
Internal Audit: 32,356
Provincial Growth Fund: 550,00
TOTAL BUDGET: 706,983
* Variation
Transverse Support: 4,933
Budget & Procurement: 1,795
Accounting Control: 32,459
Internal Audit: 2,131
Provincial Growth Fund: 550,000
TOTAL BUDGET: 583,466
Programme 1: Transverse Support - Allocation R12 061 000 (Decrease of R4 933 000)
This programme provides management support functions to the department such as human resources, labour relations, legal advisors and communications. The allocation of funds is further used for the rendering of professional, administrative and office services to my Ministry and Department.
Programme 1 reflects a decrease of R4 933 000 when compared with the amount budgeted in the previous year due to the once-off expenditure relating to the once off costs associated with the procurement of the provincial performance management system. This system will enable managers to monitor the implementation and performance of core strategic programmes within each department at various intervals during the year.
Programme 2: Budget and Procurement - Allocation R26 273 000 (increase of R1 795 000)
The main purpose of this programme is to provide expertise and advice on fiscal matters and supply chain management. This programme funds the following core functions:
* Expenditure and revenue monitoring and control;
* Budget planning and implementation;
* Fiscal policy research;
* The formulation, implementation and monitoring of the supply chain management process, policies and practices; and
* The provision of administrative support to the Central Procurement Committee
Programme 2 reflects an increase of R1 795 000 over the previous year's budget. The advent of the Municipal Finance Management Act brings about substantially increased responsibilities to the department. A provision for the support structure required to implement the provisions of the Act is reflected by this increase in the budget allocation. As indicated this is merely a provision based on an initial assessment and in all likelihood will require additional funding in 2005/06 when the Act will come into its full effect.
Programme 3: Accounting Control - Allocation R86 293 000 (Decrease by R32 459 000)
This programme funds the activities of the Department that are linked to the financial management support services of the KwaZulu-Natal Provincial Government. In particular, the funds are utilised for the following activities:
* The formulation, implementation and monitoring of accounting policies and practices;
* The provision of financial management skills transfer and capacity building;
* The implementation, management and maintenance of provincial financial systems;
* The provision of internal financial and corporate support services; and
* The management of cash reserves in terms of treasury services.
Programme 3 reflects a decrease of R32 459 000 when compared with the amount expended in the previous year. This decrease is a result of the provision for anticipated procurement of an asset management system in 2003/04 with operational and implementation costs of approximately R50m. This project was only finalised during the month of June 2004 and the expenditure will be recovered from the roll-over of the 2003/04 budget.
Programme 4: Internal Audit - Allocation R32 356 000 (Increase of R2 131 000)
This programme funds the internal audit activities of the Department on behalf of the provincial government. These activities are as follows:
* Internal audits of provincial departments;
* Risk assessment and management; and
* Fraud prevention and investigation.
Programme 4 reflects an increase of R2 131 000 when compared with the amount expended in the previous year. This increase is a result of the additional capacity and infrastructure required to provide the necessary expertise and skills in the core functions of this component. A new unit has been created which will provide assistance to departments in strategic planning and project management.
Programme 5: Provincial Growth Fund - Allocation R550 000 000
The "KZN Growth Fund" was established at the beginning of the current financial year. Funds from the Province will be ring-fenced for the specific set of projects which the Province believes is able to leverage much higher levels of private sector investment and provide the necessary injection into the provincial economy. In most cases the investment would be into infrastructural projects - but Government would seek security in terms of the investment through feasibility assessments and confirmed support from the private sector role-players who would invest on the back of the infrastructure.
In conclusion:
The Department strives to achieve excellence in financial management and improved governance in public management. The years ahead provide for further development and continued progress in budget, financial management, procurement and internal audit reforms which are essential if the government is to succeed in achieving its developmental objectives in the next decade. Government is simply going to have to become more efficient in its use of limited resources. The issue of planning, prioritisation and performance measurement is going to become critically important in the years ahead as the province implements its Provincial Growth and Development Strategy.
A core objective must be to give effect to section 38 (1) (b) of the PFMA, which refers to the need to make "effective, efficient, economical and transparent use of the resources of the department." In this regard, the Department has identified the need to develop a suitable asset management system in the province as one of the major challenges in the forthcoming MTEF period. Core Asset Management Principles have already been developed and agreed upon by provincial departments. This will pave the way for the implementation in due course of asset management in its true sense throughout the provincial government.
The National Minister of Finance on 5 December 2003 promulgated Regulations in terms of the PFMA setting out a framework for Supply Chain Management in the public sector which is intended to improve financial management, cost effectiveness and departmental service delivery in every aspect of procurement - to the ultimate benefit of all sectors of KwaZulu-Natal society. This framework may well require amendments to our own provincial procurement legislation, a responsibility of this department.
Of course more efficient use of limited resources, to promote the concept of achieving better value for the money we expend, also implies an effective and capacitated internal audit function. To this end, the internal audit component intends to concentrate in the forthcoming MTEF on fostering good client relations, and improving business processes and individual accountability in these processes.
In the area of risk management and fraud prevention, the unit will continue to enhance the investigative services that it renders to client departments as part of government's strategic approach in its efforts to fight fraud and corruption. This will involve inter alia building on already established relationships with other law enforcement agencies, the prosecuting authority and the revenue services. Finally, there will be increased focus on the strengthening of internal control structures in accordance with the Public Finance Management Act within the provincial government departments.
I take this opportunity to thank the officials of the Department in their continued efforts and determination in realising the goals and objectives of the department and contributing towards the priorities of the government.
It now gives me great pleasure to formally table for the consideration of the House the provisions in Vote 6: Provincial Treasury.
I thank you.
Issued by: Finance and Economic Development, KwaZulu-Natal Provincial Government
22 July 2004
Source: Department of Finance & Economic Development (http://www.kzntreasury.gov.za)
Source: KwaZulu-Natal Provincial Government
Title: M Mabuyakhulu: KwaZulu-Natal Treasury Prov Budget Vote 2004/2005
KWAZULU-NATAL PROVINCIAL TREASURY: BUDGET POLICY SPEECH DELIVERED BY THE MINISTER OF FINANCE AND ECONOMIC DEVELOPMENT, MR MICHAEL MABUYAKHULU, MPP, 22 July 2004
Chairperson and Honourable Members. It is my great privilege to introduce the debate on Vote 6, Provincial Treasury.
Honourable Members will appreciate that the forthcoming MTEF period (2004/05 to 2006/07) will prove extremely challenging for the Department. On the one hand, the challenge will be to consolidate and build on the various financial management reforms implemented in the last five years, while on the other the Department will be driving a number of exciting new initiatives of major significance for the province. There is no question however that the Department has the capacity, the skills and the determination to successfully implement the new programmes and functions with which it has been entrusted, and in so doing succeed in keeping the Province of KwaZulu-Natal at the forefront of financial management best practice in the country. What follows is a brief summary of the major challenges and initiatives, which will be the focus of the Department in the next three years. I will also deal with the departmental budget emphasising some important areas of our work during the first year of the MTEF.
Budget management and planning issues
During the financial years 2002/03 and 2003/04, the Department spent a great deal of time and effort in advising and assisting departments in establishing appropriate integrated strategic management and reporting frameworks. This was done with the ongoing assistance of the National Treasury, which developed uniform programme structures and performance measurement criteria for the major sector departments, which were adopted for the first time in the 2003/04 budget statements. In the latter half of 2003, a major initiative was launched by the National Treasury to roll out a new economic reporting format. This reporting framework brings the public sector in line with internationally accepted Government Finance Statistics (GFS) formats and standards. The new economic reporting format is used for the first time in the 2004/05 provincial budget statements. We will embark on a process of putting the reports through this format during this year. It is our hope that out of this process, we will gain another step towards better linkage between spending, service delivery and planning. A further refinement of the programme and reporting structures will be done in line with the current restructuring of provincial departments, together with the review of the Provincial Growth and Development Strategy.
Performance budgeting
Financial management and budgetary reforms in South Africa have accelerated since the advent of the Public Finance Management Act of 1999 (PFMA). The 2004 reforms bring with them the full implementation of a budgeting system that will ensure that the social contract that Government has with the people of this Province is fully honoured. For its part, the new Government of the Province, through the State of the Province address by the Premier and the Provincial Budget Speech has articulated the vision for the Province and what people can expect from this Government. A key ingredient to the success of this term of office is the ability to quantify the achievements made and report those to this Legislature and to the KwaZulu-Natal populace.
It is imperative therefore, that the Province proceeds immediately with the implementation of a new PFMA-aligned budgeting and financial management system to ensure proper implementation and monitoring of the strategies and business plans of provincial departments. As mentioned in the provincial budget speech the implementation of this system will involve the following three phases:
* Phase 1 - Setting the Budget Structure right
* Phase 2 - Strengthening the institutional capacity for fiscal management
* Phase 3 - Implementation of software for Performance Budgeting System
The important objective of implementing such a system is to ensure that funds allocated to departments are properly motivated and are linked to the achievements of service delivery plans. The time has come to ensure that budgeted funds are linked to outputs and hence outcomes. This taken together with the roll out of the balanced score card system of managing individual and institutional performance, we are assured of a government capable of delivery and whose delivery can be measured with ease.
Infrastructure
Infrastructure planning and monitoring expenditure thereon will also be a main focal point of the Department in the 2004/05 MTEF period and beyond. In line with an increased emphasis on infrastructure and alternative forms of infrastructure service delivery the Department has established an Infrastructure Unit headed by a General Manager. The component is in the process of finalising a Provincial Statement of Infrastructure Needs, which will serve as the basis for the development of a comprehensive, integrated long term infrastructure plan. Among the objectives of the unit is to identify public private partnership opportunities for the delivery of social and economic infrastructure in the province, and assist departments with contract finalisation and implementation arrangements. The unit is also facilitating inter-departmental, inter-sectoral and inter-sphere coordination and cooperation in respect of the planning and delivery of infrastructure. The Departments of Transport and Education have agreed to be the first departments to be put through this thorough process of infrastructure management.
Municipal Finance
The promulgation in February 2004 of the Municipal Finance Management Act (MFMA), No. 56 of 2003, has significant implications for the Department and indeed for the provincial government as a whole. The MFMA came into effect on 1 July 2004. The primary objective of the Act is to reform and modernise financial management practices at local government level, in much the same way as the PFMA, which applied at provincial and national level. In terms of the Act the Department is assigned a number of functions and responsibilities, aimed at ensuring successful implementation of the Act and subsequent compliance by municipalities with the various provisions of the Act - by definition these are new functions and responsibilities, which did not previously fall within the mandate of this Department.
These functions range from administrative tasks such as maintaining a database of banking details of municipalities, to the more demanding tasks of active monitoring of municipal budgets and provision of financial management capacity building and support. More specifically, the Department will be expected to monitor the revenue and expenditure of municipalities on a monthly, quarterly, bi-annual and annual basis; assist municipalities in the preparation of annual budgets; monitor compliance with the MFMA, and verify and assess the criteria of a municipality's Financial Recovery Plan where and when required. An important challenge will be to capacitate municipalities to implement the range of financial management reforms required by the Act.
We are excited by these challenges not only because they present us with an opportunity to learn new things that are in the municipal sphere of government, but also because we strongly believe reforms in the municipal sphere of government are necessary. It is therefore exciting to be part of finding solutions and contributing to improved delivery in the government sphere that is closest to the people.
Procurement issues
In the field of procurement, although considerable improvements have been made to the provincial procurement system in recent years, the challenge remains to increase the effectiveness and impact of the provincial procurement spend, particularly in respect of further advancing Black economic Empowerment through preferential procurement measures. My emphasis will be in ensuring that in spending the provincial budget we unashamedly ensure that Black Economic Empowerment is advanced. As proven by such departments as Transport, we can use state procurement to accelerate the delivery of Black Economic Empowerment.
In January 2004 the National Treasury issued regulations in terms of the PFMA providing a framework for the introduction of a Supply Chain Management System (SCM) in the public sector. We have almost completed orientating provincial departments on the advantages and necessity of introducing such a system. This is a medium term project, which we will phase in over the two financial years beginning with the current financial year.
A Supply Chain Management system includes features of demand management, acquisitioning management, logistics management and disposal management. The SCM system will need to integrate the Financial Management system, asset management system and an e-Procurement system. Presently, the Supply Chain Management Office manages the Suppliers Database, which is undergoing substantial upgrading which will vastly increase its value as a tool in acquisition management. The impact of SCM on the Province is such that it will require a thorough revision of the existing procurement system and legislation - a repeal of the KwaZulu-Natal Procurement Act, 2001, will inter ala be necessary. It will also entail an overhaul of the partially implemented Provisioning Administration System. Re-structuring of the traditional procurement and provisioning offices in all Departments will be necessary, as well as re-training of procurement officials.
It is our stated intention that by the end of the implementation phase, we will have a fully-fledged e-Procurement system. It is anticipated that the establishing of a SCM system will lead to measurable improvements in financial management, cost effectiveness and departmental service delivery, with all sectors of KwaZulu-Natal society benefiting on an equal basis.
Accounting control issues
During this financial year we will "bed-down" the conversion to the new Basic Accounting System (BAS). The process of converting from one system (FMS) to another has required extensive training. Process realignment and a comprehensive infrastructure review were required to ensure that the BAS would operate effectively. We are very grateful to the Departments for the important role in undertaking their specific responsibilities and have thereby ensured the success of the conversion. The last two departments to be converted, owing to their size and scale of decentralisation, were the departments of Health and Education, which went on line on 1 April 2004. As with any new system of this size and complexity, there a number of teething problems which need to be addressed, but there can be no question that BAS has already brought about specific benefits to the province in terms of on-line availability of information and direct payments to suppliers.
The second major initiative being managed under the auspices of the accounting control division in the Department is the establishing of a transversal asset management system for use throughout the provincial government. A tender has recently been awarded for the development and implementation of a comprehensive asset management system, which will include the population and maintenance of a provincial asset register. The project is intended to commence with the provincial asset count, which will ensure that the province has a record of all assets with their respective value. The system will furthermore provide management information, which will ensure adequate and accurate budgeting for both capital expenditure and maintenance costs and effective and efficient allocations and utilisation of provincial assets.
This will pave the way for the implementation of asset management in its true sense throughout the provincial government. This includes acquisition assessments, repairs and maintenance management, replacements cycles and disposal reviews, all of which must be fully evaluated and accounted for in the strategic and procurement plans and MTEF submissions of provincial departments. As was the case in several other previous financial management reforms, the asset management system in KwaZulu-Natal will be rolled out in 2004 as a pilot project for adoption in the country as a whole.
We are very pleased that the tender of approximately R50 million has been awarded to a consortium that is led by a black accounting firm. This is the beginning of an era where we will commit important and significant transactions to black firms. It is also our expectation that as we do this, the companies, firms and individuals will give of their best in ensuring that the services that government is procuring are provided timely and that we receive the best quality. This is the true meaning of an empowering partnership with the private sector.
During this financial year the Department will move forward with the change from a cash-based to a full accrual accounting system, as envisaged by the PFMA. This, like previous financial management reforms, will be a complex and time-consuming exercise, which will of necessity have to be phased in over several years. Government has already begun the transition with the introduction of the Standard Chart of Accounts, additional disclosures on accruals and commitments in the annual financial statements and the implementation of supply chain management principles.
Internal audit issues
In the endeavour to minimise the risks facing the provincial government, the Internal Audit Unit has developed risk management strategies, a fraud prevention plan, and is in the process of developing best practice guides for effective internal control within government.
The Internal Audit Unit's audit strategy strives to achieve two objectives. The first is to improve service delivery operations, both directly through audits of departmental operations and indirectly through improvements in support functions. The second is to make each audit staff member accountable for "doing the right audit, right."
The Internal Audit Unit is a team of skilled personnel dedicated to helping the Provincial Government reach its essential goals and objectives. To this end, the Internal Audit Unit independently conducts activities such as audits, investigations, surveys and special reviews with accuracy, integrity and objectivity working with management in the hope of proactively avoiding problems before they occur.
One of the most critical steps in creating a realm of professionalism within the Internal Audit Unit was the development of the Internal Audit Procedures Manual. Audit, investigations and other reviews are carried out utilising surveys, plans, questionnaires, compliance audit techniques, statistical analyses and other appropriate means considered necessary to achieving stated objectives. All audit staff, including consultants engaged by the Internal Audit Component on audits, carry out their duties in compliance with the standards and code of ethics of the Institute of Internal Auditors and the Public Service Code of Conduct.
The Internal Audit Unit procured and implemented audit software automated tool to enhance efficiencies in providing internal audit services to our clients. Our audit methodology was reviewed and amended to include functionalities of the audit software. Internal auditors at all levels were subjected to extensive training on the audit software and further staff within the unit were identified and trained as super-users to enable the unit to solve problems encountered by staff on their daily function on the software.
The unit finalised Risk Assessments and developed a three-year rolling audit plan and annual audit plan for approval by the Audit Committee. The unit managed to perform and finalise 90% of the planned assignments and 10% of the planned assignments were postponed due to other urgent requests by our clients which had to be given priority.
The unit improved its Performance Management System by the introduction of performance agreements at Audit Supervisor level (Assistant Director) and intensifying performance assessments at all level. This ensured improved management of outputs to our clients and increased responsibility and accountability. The training plan was enhanced by developing training material for an induction course for all new staff members and a leadership course for all managers within the unit.
In order to improve effectiveness and quality of the internal audit function within the province the unit engaged the Institute of Internal Auditors, which is a body that regulates the functioning of internal audits worldwide. Positive results were received from the institute, however deficiencies were also highlighted. The management of the unit has engaged into a rigorous action plan to resolve such weaknesses.
Fraud Prevention Plans for 14 Provincial Government Departments have been developed based on the risk assessments that have been conducted in these Provincial Government Departments. The Unit has also been requested by schedule 3 entities, which are partly funded by Provincial Treasury to conduct risk assessment and develop Fraud Prevention Plan. Two such requests have been attended and the unit is currently attending to other similar requests from similar organisations.
Several workshops and presentations have been conducted and are still continuing creating awareness of fraud and advocating good Corporate Governance. Presentations on Risk Management and Corporate Governance have been done to management of six Provincial Government departments. Requests to conduct these to lower level staff have been received from these departments.
The Unit is currently assisting two Provincial Government Departments in terms of project management in order that the departments can effectively manage their projects.
Fraud prevention is being treated as a high profile issue within the unit. At present the component that deals with fraud investigations and prosecutions is being restructured with a view to expediting investigations and prosecutions. This unit has been structured in a way so as to employ high profile investigators and legal experts to deal with fraud charges brought against officials and persons intent on defrauding government.
The unit completed a total number of 54 investigations. We also took over one of the much-publicised investigations, namely "Operation Cure" which was brought to its logical conclusion. There were a total number of 113 suspects who were arrested and appeared before the court. Of the aforementioned suspects, 25 were suppliers. A significant conviction was where the accused was convicted of 433 counts of corruption and was sentenced to a period of nine years in jail. Another high profile investigation was the much-publicised "Operation Crop". A total number of 46 suspects were arrested and are currently appearing at the regional court in Durban. Of the aforementioned approximately 50% were government officials and the remainder thereof, suppliers.
We have also enhanced our service provision to client departments to extend beyond investigating, to drafting charges for the disciplinary enquiry files with supporting evidentiary material. This makes it very easy for the various Labour Relations components of at our clients' departments to handle disciplinary hearings.
With a view to building much needed capacity in the component, initiatives have been taken to form relationships and seek accreditation to and membership of professional and academic institutions. By way of illustration, the Unit has engaged with the University of Natal to begin offering training programmes that will assist in building the theoretical capacity that is required to work in such an environment.
THE BUDGET FOR THE 2004/05 FINANCIAL YEAR
I will now deal with the budget of the Department for the 2004/05 financial year. For comparative purposes the following table indicates the changes to the department's budget relative to the 2003/04 financial year:
Programme 2003/04
* Adjusted Budget 2003/2004
Transverse Support: 16,994
Budget & Procurement: 24,478
Accounting Control: 118,752
Internal Audit: 30,225
Provincial Growth Fund: 0
TOTAL BUDGET: 190,449
* Budget 2004/2005
Transverse Support: 12,061
Budget & Procurement: 26,273
Accounting Control: 86,293
Internal Audit: 32,356
Provincial Growth Fund: 550,00
TOTAL BUDGET: 706,983
* Variation
Transverse Support: 4,933
Budget & Procurement: 1,795
Accounting Control: 32,459
Internal Audit: 2,131
Provincial Growth Fund: 550,000
TOTAL BUDGET: 583,466
Programme 1: Transverse Support - Allocation R12 061 000 (Decrease of R4 933 000)
This programme provides management support functions to the department such as human resources, labour relations, legal advisors and communications. The allocation of funds is further used for the rendering of professional, administrative and office services to my Ministry and Department.
Programme 1 reflects a decrease of R4 933 000 when compared with the amount budgeted in the previous year due to the once-off expenditure relating to the once off costs associated with the procurement of the provincial performance management system. This system will enable managers to monitor the implementation and performance of core strategic programmes within each department at various intervals during the year.
Programme 2: Budget and Procurement - Allocation R26 273 000 (increase of R1 795 000)
The main purpose of this programme is to provide expertise and advice on fiscal matters and supply chain management. This programme funds the following core functions:
* Expenditure and revenue monitoring and control;
* Budget planning and implementation;
* Fiscal policy research;
* The formulation, implementation and monitoring of the supply chain management process, policies and practices; and
* The provision of administrative support to the Central Procurement Committee
Programme 2 reflects an increase of R1 795 000 over the previous year's budget. The advent of the Municipal Finance Management Act brings about substantially increased responsibilities to the department. A provision for the support structure required to implement the provisions of the Act is reflected by this increase in the budget allocation. As indicated this is merely a provision based on an initial assessment and in all likelihood will require additional funding in 2005/06 when the Act will come into its full effect.
Programme 3: Accounting Control - Allocation R86 293 000 (Decrease by R32 459 000)
This programme funds the activities of the Department that are linked to the financial management support services of the KwaZulu-Natal Provincial Government. In particular, the funds are utilised for the following activities:
* The formulation, implementation and monitoring of accounting policies and practices;
* The provision of financial management skills transfer and capacity building;
* The implementation, management and maintenance of provincial financial systems;
* The provision of internal financial and corporate support services; and
* The management of cash reserves in terms of treasury services.
Programme 3 reflects a decrease of R32 459 000 when compared with the amount expended in the previous year. This decrease is a result of the provision for anticipated procurement of an asset management system in 2003/04 with operational and implementation costs of approximately R50m. This project was only finalised during the month of June 2004 and the expenditure will be recovered from the roll-over of the 2003/04 budget.
Programme 4: Internal Audit - Allocation R32 356 000 (Increase of R2 131 000)
This programme funds the internal audit activities of the Department on behalf of the provincial government. These activities are as follows:
* Internal audits of provincial departments;
* Risk assessment and management; and
* Fraud prevention and investigation.
Programme 4 reflects an increase of R2 131 000 when compared with the amount expended in the previous year. This increase is a result of the additional capacity and infrastructure required to provide the necessary expertise and skills in the core functions of this component. A new unit has been created which will provide assistance to departments in strategic planning and project management.
Programme 5: Provincial Growth Fund - Allocation R550 000 000
The "KZN Growth Fund" was established at the beginning of the current financial year. Funds from the Province will be ring-fenced for the specific set of projects which the Province believes is able to leverage much higher levels of private sector investment and provide the necessary injection into the provincial economy. In most cases the investment would be into infrastructural projects - but Government would seek security in terms of the investment through feasibility assessments and confirmed support from the private sector role-players who would invest on the back of the infrastructure.
In conclusion:
The Department strives to achieve excellence in financial management and improved governance in public management. The years ahead provide for further development and continued progress in budget, financial management, procurement and internal audit reforms which are essential if the government is to succeed in achieving its developmental objectives in the next decade. Government is simply going to have to become more efficient in its use of limited resources. The issue of planning, prioritisation and performance measurement is going to become critically important in the years ahead as the province implements its Provincial Growth and Development Strategy.
A core objective must be to give effect to section 38 (1) (b) of the PFMA, which refers to the need to make "effective, efficient, economical and transparent use of the resources of the department." In this regard, the Department has identified the need to develop a suitable asset management system in the province as one of the major challenges in the forthcoming MTEF period. Core Asset Management Principles have already been developed and agreed upon by provincial departments. This will pave the way for the implementation in due course of asset management in its true sense throughout the provincial government.
The National Minister of Finance on 5 December 2003 promulgated Regulations in terms of the PFMA setting out a framework for Supply Chain Management in the public sector which is intended to improve financial management, cost effectiveness and departmental service delivery in every aspect of procurement - to the ultimate benefit of all sectors of KwaZulu-Natal society. This framework may well require amendments to our own provincial procurement legislation, a responsibility of this department.
Of course more efficient use of limited resources, to promote the concept of achieving better value for the money we expend, also implies an effective and capacitated internal audit function. To this end, the internal audit component intends to concentrate in the forthcoming MTEF on fostering good client relations, and improving business processes and individual accountability in these processes.
In the area of risk management and fraud prevention, the unit will continue to enhance the investigative services that it renders to client departments as part of government's strategic approach in its efforts to fight fraud and corruption. This will involve inter alia building on already established relationships with other law enforcement agencies, the prosecuting authority and the revenue services. Finally, there will be increased focus on the strengthening of internal control structures in accordance with the Public Finance Management Act within the provincial government departments.
I take this opportunity to thank the officials of the Department in their continued efforts and determination in realising the goals and objectives of the department and contributing towards the priorities of the government.
It now gives me great pleasure to formally table for the consideration of the House the provisions in Vote 6: Provincial Treasury.
I thank you.
Issued by: Finance and Economic Development, KwaZulu-Natal Provincial Government
22 July 2004
Source: Department of Finance & Economic Development (http://www.kzntreasury.gov.za)
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