1. BUDGET CONSIDERATIONS
Portfolio Committee of the Department of Cooperative Governance and Traditional Affairs
12 April 2011

2. Reputation promise/mission
The Auditor-General of South Africa has a constitutional mandate and, as the Supreme Audit Institution (SAI) of South Africa, it exists to strengthen our country’s democracy by enabling oversight, accountability and governance in the public sector through auditing, thereby building public confidence.

3. Contents Introduction/ background Compliance requirements:
Public Finance Management Act (PFMA);
Treasury regulations; and
Division of Revenue Act (DoRA)
Annual report 2009/10 considerations
Medium-term expenditure estimates 2011/12
General report 2009/10 outcomes
Other
Closure/questions

4. 1. Introduction/background
The aim/purpose of this presentation:
To provide the Portfolio committee of the Department of Cooperative Governance and Traditional Affairs with background regarding budget review of the department.
So what is a budget…?
Dictionary:
“A budget (from old French bougette, purse) is a list of all planned expenses and revenues. It is a plan for saving and spending. A budget is an important concept in micro-economics, which uses a budget line to illustrate the trade-offs between two or more goods. In other terms, a budget is an organizational plan stated in monetary terms.”
In summary, the purpose of budgeting is to:
Provide a forecast of revenues and expenditures, that is, construct a model of how a business might perform financially if certain strategies, events and plans are carried out.
Enable the actual financial operation of the business to be measured against the forecast.”

5. 2. Compliance requirements - PFMA
Section 27 (1) states that:
“The Minister must table the annual budget for a financial year in the National Assembly before the start of that financial year or, in exceptional circumstances, on a date as soon as possible after the start of that financial year, as the Minister may determine”.
The format of which must be in accordance to the prescripts of the PFMA.

6. 2. Compliance requirements: PFMA (cont.)
Section 27 (4) states that:
“When the annual budget is introduced in the National Assembly or a provincial legislature, the accounting officer for each department must submit to Parliament or the provincial legislature, as may be appropriate, measurable objectives for each main division within the department’s vote. The relevant treasury may co-ordinate these submissions and consolidate them in one document.”

7. 2. Compliance requirements: PFMA (cont.)
Section 28 also states:
“Multi-year budget projections.—
(1) The Minister (of finance) and the MEC for finance in a province must annually table in the National Assembly and in that province’s provincial legislature, respectively, a multi-year budget projection of—
the estimated revenue expected to be raised during each year of the multi-year period; and
the estimated expenditure expected to be incurred per vote during each year of the multi-year period, differentiating between capital and current expenditure.
(2) A multi-year budget projection tabled by the Minister must contain the Minister’s key macro-economic projections.”

8. 2. Compliance requirements: PFMA (cont.)
Section 29 (1) states that:
“If an annual budget is not passed before the start of the financial year to which it relates, funds may be withdrawn in accordance with this section from the relevant Revenue Fund for the services of the state or the province concerned during that financial year as direct charges against the Fund until the budget is passed.”

9. 2. Compliance requirements: Treasury Regulations
National Treasury regulations states the following:
5.   Strategic planning
“5.1  Annual preparation of strategic plans
5.1.1  Each year, the accounting officer of an institution must prepare a strategic plan for the forthcoming MTEF period for approval by the relevant executive authority.
5.2  Submission and contents of strategic plans
5.2.1  In order to facilitate the discussion of individual votes, the approved strategic plan must be tabled in Parliament or the relevant legislature at least 10 days prior to the discussion of the department’s budget vote.

10. 2. Compliance requirements: Treasury Regulations (cont.)
5.2.2  The strategic plan must—
(a) cover a period of three years and be consistent with the institution’s published medium term expenditure estimates;
(b) include specific Constitutional and other legislative, functional and policy mandates that indicate the output deliverables for which the institution is responsible;
(c) include policy developments and legislative changes that influence programme spending plans over the three-year period;
(d) include the measurable objectives, expected outcomes, programme outputs, indicators (measures) and targets of the institution’s programmes;
(e) include details of proposed acquisitions of fixed or movable capital assets, planned capital investments and rehabilitation and maintenance of physical assets;
( f ) include details of proposed acquisitions of financial assets or capital transfers and plans for the management of financial assets and liabilities;
(g) include multi-year projections of income and projected receipts from the sale of assets;
(h) include details of the Service Delivery Improvement Programme; and
(i) include details of proposed information technology acquisition or expansion in reference to an information technology plan;

11. 2. Compliance requirements: Treasury Regulations (cont.)
The following are required by National Treasury from an accounting officer:
“6.1.3  An accounting officer of a budget vote must ensure that the budget submission for that vote includes appropriate supporting information in respect of constitutional institutions and public entities receiving transfers on that vote.”
6.2  Formats of the annual budget
6.2.1 The annual budget documentation, as presented to Parliament or a provincial legislature, must conform to the formats as determined by the National Treasury.”

12. 2. Compliance requirements: DoRA
Duties of a transferring national officer (schedule 4,5,6,7 or 8):
Sections 9 (schedule 4) and 10 of the Division of Revenue Act
Critical Duties include:
Certifying to NT, within 14 days of Act –
that all other arrangements or requirements as stipulated in the Act or in the relevant framework have been complied with;
ensuring that transfers to all provinces and municipalities are —
deposited only into the primary bank account;
made in accordance with the payment schedule approved in terms of section 21;
monitoring expenditure and non-financial performance (4) information on programmes funded by an allocation (except MIG-Cities)
evaluate the performance of programmes funded or partially funded by the allocation and submit such evaluations to the National Treasury

13. 2. Compliance requirements: DoRA (cont.)
Duties of a receiving national officer (schedule 4,5,6,7 or 8):
Sections 11 (schedule 4) and 12 of the Division of Revenue Act
Critical Duties include:
Certifying to NT, within 14 days of Act –
that all other arrangements or requirements as stipulated in the Act or in the relevant framework have been complied with;
responsible for–
complying with the framework (4);
the manner in which it allocates and spends funds
must ensure and certify to the NT that the municipality —
indicates or exclusively appropriates each programme in its annual budget;
makes public the conditions of the grant
report to the transferring national officer the NT —
spending and financial performance against funded programmes
report quarterly to the transferring national officer and the NT
evaluate the performance and submit to national receiving officer
NB:
Both officers must report on performance in their annual reports!!

14. 2. Compliance requirements: DoRA (cont.)
Withholding of allocation by national transferring officer
Subject to section 16 the Division of Revenue Act –
Non-compliance by receiving officer to this Act;
Roll-overs not spent;
Significant under spending with no reasons
NB: (consider impact on service delivery)
Amendment of payment schedule by national transferring officer
Subject to section 22,
submit amended schedule to NT, NT decides based on info presented
Contraventions/Transgressions of Act!!!!
Subject to section 33 of this Act:
1. Unauthorised: Spending not complying to conditions as required by section 15;
Transfers not into primary bank accounts/public deposit accounts
2. Irregular: Transfer/Spending of allocation in contravention of Act or Framework!!!!!
22.   Amendment of payment schedule.—(1)  Subject to subsection (2), a transferring national officer of a Schedule 4, 5 or 6 allocation must, within seven days of the withholding or stopping of an allocation in terms of section 16 or 17, amend a payment schedule as a result of the withholding or stopping of an allocation in terms of this Act and submit the amended payment schedule to the National Treasury, prior to any further transfers being made.

15. 3. Annual Report 2009/10
Critical issues highlighted and reported (AGSA):
Submission of the strategic plan;
Not submitted 10 days prior to discussion of vote
Approval of the strategic plan – executive authority;
First six months not approved by executive authority
No quarterly reporting on performance information;
No evidence provided, in form of quarterly reports submitted to executive authority, that effective procedures to facilitate performance monitoring, evaluation, corrections were performed
Inadequate content of strategic plan;
Did not include measurable objectives, expected outcomes, programme outputs, indicators and targets for all programmes
Usefulness of reported performance information;(Not reporting on all predetermined objectives)
Did not report on its performance against all predetermined objectives
Matters reported, relate to compliance and reporting requirements of National Treasury regulation – “Chapter 5: Strategic Plan”

16. Budget - Significant and material due to the transfers in programme 6.
3. Annual Report 2009/10 (cont.)
Reported spending by Department:
Overall Spending = 98.5%
R’ R’ R’000
Programme % Appr Actual Variance
Programme %
Programme %
Programme %
Programme %
Programme %
Programme %
Programme %
Totals %
Underspending of programmes 2 & 4, linked to reported predetermined objectives (achievements)?
Reasons for under expenditure - Good and services and payments to municipalities withheld.
Budget - Significant and material due to the transfers in programme 6.

17. 3. Annual Report 2009/10 (cont.) Virements (section 43 of PFMA) (*):
Programme 4 to Programme 1: R
Programme 4 to Programme 3: R
Programme 3 & 5 to Programme 7: R
Programme 4 to Theft and losses: R
Over and underspending – Reasons for it?
Considerations:
Proper Budgeting upfront?
Adequate expenditure controls?
Overall spending trends compared to compliance?
(*) Refer to page 109 of annual report

18. 4. Medium-term expenditure 2011/12
Medium-term expenditure for 2011/12 per programme (*): R’
Programme Estimate (11/12)
Programme
Programme
Programme
Programme
Programme
Programme
Programme
Totals
Transfers to entities: R’
South African Local Government Association (SALGA)
Municipal Demarcation Board (MDB)
Local Government Equitable Share (Municipalities)
Municipal Infrastructure Grant (MIG Grant)
The bulk of the budget relates to transfers!
(*) Refer to page 35 of Treasury ENE

19. 5. General report 2009/10 outcomes
Budget related findings (*):
Strategic plan vs Budget: Accounting officers/authorities of departments and public entities need to ensure the alignment of the budgets and the quarterly and annual reporting with strategic plans;
Creation/split of Departments: poses challenges in respect of budgeting, strategic planning and internal controls at the respective departments. (CoGTA into DeCoG and DeTrad);
Objectives not achieved on performance against predetermined objectives results in under spending and impacts on service delivery!!!
(*) Refer to page 11 of the general report.

20. 6. Other Underspending by municipalities MIG Grant:
Transferred Spent % Underspent
R8,738 billion R6,574 billion 75% R2,163 billion
Funds withheld - Number of municipalities per province:
Easter Cape 27
Free State 8
Gauteng 2
KwaZulu Natal 23
Limpopo 3
Mpumalanga 10
Northern Cape 22
North West 15
Western Cape 8

21. 6. Other (cont.) Interventions by CoGTA at Municipal level
Improvement of compliance to DoRA
Strategic plan vs Budget
Adequate reporting of predetermined objectives

22. QUESTIONS???