1. In-Year Financial Monitoring Briefing provided by the National Treasury for the Joint Budget Committee October 12, 2007

2. 2 Outline Year-to-Date Expenditure Trends (9:00-10:00) –Consolidated –National –Provinces (including conditional grants) Analyzing In-Year Monitoring Reports (10:00-13:00) –Background, Legal Requirements and IYM Processes –Section 32 Monthly National Report –Projected Cashflow and Expenditures Report –National Programme & Economic Classification Quarterly Report (new) –Section 32 Quarterly Provincial Budgets and Expenditure Report –Overview: Provincial Quarterly Performance Process –Vulindlela

3. 3 YTD Consolidated Expenditure The ENE budget for FY 2007-08 totals R533.9 billion of which: –Current = R90 billion –Transfers & subsidies = R202.6 billion –Capital = R6.6 billion –Direct charges = R231.7 billion (mostly equitable share) –Contingency = R3 billion Year to date (April - Aug or 41.6%) expenditures total R218.1 billion of which: YTD –Current = R32.4 billion36% –Transfers & subsidies = R85.9 billion42% –Capital = R1.6 billion24% –Direct charges = R98.3 billion42% Total 41.3%

4. 4 Provincial Budgets and Expenditure as at 31 August 2007 The presentation covers provincial spending for the first five months of 2007/08 (as at 31 August 2007) –Based on IYM Models submitted by PTs by 22 Sep 2007 In aggregate, provincial spending is on track with 38,1% or R80,3bn spent of their budgets –Provinces projecting to overspend by R2,3bn Should be viewed against anticipated roll-overs Multi-term agreement on ICS Spending on conditional grants (CGs) is generally lower at 30,7% against CGs budget

5. 5 IYM Background Sparked by 1997/98 financial crisis in provinces –Provinces overspent by R5,8 billion in aggregate Monitoring system (EWS) approved by Cabinet Change in the Budget Process IYM to constitute: –Expenditure management –Revenue management –Cash flow management –Movements in bank balances –Suspense accounts Legal Requirements –Section 32 of PFMA Publishing reports on state of budgets –Section 40(4) of PFMA - formats –Sections 12 and 31(5) of the Division of Revenue Act, 2007 (CGs) –Acts require monthly expenditure and revenue reporting to the provincial treasuries and National Treasury –Circular issued with regard to submission dates

6. 6 In-year Management, Monitoring and Reporting Accountability Cycle: –Strategic and Performance Plans/Annual Performance Plans –Budget –In-year monitoring (IYM) (Inform SP targets) –Quarterly Performance Reports –Annual Reports Purpose: –Focus on performance against budget –Alert managers where remedial action is required –Reports serve as management tool –Feed the Budget Process –Feed into publications such as the Annual Intergovernmental Fiscal Review Political level to make decisions

7. 7 Monthly Reporting Process Accounting officer must submit reports to relevant treasuries and executive authorities within 15 days of the end of each month To improve accountability, AOs are required to sign-off on the monthly reports before submitting to relevant treasury or executive authority Contents of reports – legal requirement (S40): –Actual revenue and expenditure –Projections for remainder of financial year –Information on conditional grants –Any material variances Format determined by the National Treasury in terms of PFMA and annual DoRA –Revised annually

8. 8 What is the Section 32 Monthly National Report Monthly publication by NT Time periods covered: –Audited outcomes of the previous financial year (2005/06) –Current financial year: 1 month lag (Jan 07 report refers to Dec 06) Summary table of national revenue, ezpenditure and borrowing Table 1: Revenue: SCOA compliant, tax (SARS) & dept revenue from Vulindlela (Gov MIS); shows all the tax revenue plus departmental receipts (budgeted vs. actual) Table 2: Expenditure: per vote, per main econ. classification; budgeted vs. actual, spending to date Table 3: Revenue fund receipts and direct payments Table 4: Detailed information on borrowing needs including how the debt gets financed: domestic/ foreign market, loans, bonds (short term or long term) Table 5: Reconciliation of cash book (where the transactions are captured) and bank accounts (PMG & NRF balances)

9. 9 Purpose and Analysis of Section 32 Monthly National Report Track the implementation of the Appropriation Act (and after October, the Adjustments Appropriation Act) Provides a detailed analysis of national government accounts thereby increasing transparency and accountability Also provides high level “snap shot” view of the link between expenditure, revenue and borrowing Public document – published in the government gazette. Mainly used by Parliament, financial institutions (SARB, IMF, WB, investors etc.) Comparison of current month (and year to date) with the same period in the previous financial year wrt: Exp: by vote and main economic classification current payments, transfers and subsidies and payment for capital assets Rev: collection by SCOA categories Debt: deficit plus extraordinary rev and payments Financing of the Debt: details by debt instrument

10. 10 Projected Cashflow and Expenditure Report What is it: Provides a snap-shot of projected cashflow needs and expenditures per vote per month for the fiscal year Purpose: To assist Parliament to assess departmental planning in relation to cashflow and expenditures for the year Analysis: Compare projections with actual spending on a monthly or quarterly basis. Also provides an early warning system when departments are either under or over-spending.

11. 11 National Programme & Economic Classification Quarterly Report What is it: Provides detailed quarterly in-year spending information in a readable format including: –Consolidated Actual spending compared to budget per vote and year-on-year trends Actual spending compared to budget per economic classification and year- on-year trends Accumulated cashflow balances per month –Vote Programmatic actual spending compared to budget and projected expenditure including variance from projection with reasons from departments for abnormal deviations Economic classification actual spending compared to budget Departmental receipts –Cashflow Departmental cash management information including monthly balances, drawings and expenditure with carry-overs

12. 12 National Programme & Economic Classification Quarterly Report Purpose: To assist Parliament to scrutinize departmental financial performance more closely and consistently Analysis: Facilitates various analysis including: –Programmatic spending –Economic classification spending such as: compensation of employees goods and services transfers to provinces transfers to public entities infrastructure spending –Departmental receipts –Departmental cashflow management

13. 13 Reports Generated –Section 32 Publication –Press Release –Technical Committee for Finance (TCF) –Budget Council –President’s Co-ordinating Council (PCC) –Select Committee for Finance Provincial Quarterly Reports for Joint Budget Committee –Quarterly Section 32 Publication –Press Release/narrative report –Selective tables (dataset) Section 32 Quarterly Provincial Budgets and Expenditure Reports

14. 14 Current spending trends against projected outcome Are projections a reasonable reflection of likely expenditure outcomes for the financial year? Spending on Social Welfare Services (Social Development) at 33,5% - why lower than aggregated average (38,1%), etc? Interpretation of Reports

15. 15 CG budgets total R31,5 billion with health making up the bulk of R11,3 billion Excludes spending on general purpose CGs (Schedule 4 grants) such as the National Tertiary Services and Provincial Infrastructure grants –In terms of 2007 Division of Revenue Act (Section 29(4)(b)) Total budget, excluding Schedule 4 grants, is R18,0 billion, against spending of 30,7% or R5,8bn Specific grants that show low rates of spending include: –Community Library Services (7,7%) –HIV and AIDS (Life Skills Education) (19,3%) –Land Care Programme Grant: Poverty (19,9%) –National School Nutrition Programme (23,4%) –Mass Sport and Recreation Participation Programme (27,0%) Conditional Grants

16. 16 Conditional Grants Spending Rates 5 or more provinces have spent less than 30% of their grant budget for the following grants: –Land Care Programme; –Community Library Services Grant; –HIV and AIDS (Life Skills Education); and –Mass Sport and Recreation Participation Programme Although the rate of spending is encouraging and reflects an improvement over previous financial years, overall spending still lies below total provincial spending

17. 17 It should be noted that one cannot necessarily draw meaningful conclusions given the fact that it is relatively early in the financial year Provinces are projecting to overspent by R2,3 billion –Once anticipated provincial roll-overs, which will be reflected in the provincial adjustments budgets, are taken into account on the budget side, the overall outcome would change The adjustments budgets are reflected in the 3rd quarter and 4th quarter publications Interpretation of Reports

18. 18 Overview: Provincial Quarterly Performance Process Outcome assessment of provincial state of implementation of performance management concepts Managing of Quarterly Performance Reports Standardising of performance measures for non-service delivery departments Review of performance measures of service delivery departments Managing of Quarterly Performance reports 2007/08 –Use an enhanced Excel based database for the gathering of non- financial data per quarter – main objective of enhancement is to improve the quality of data –Aligned submission dates of non-financial data with financial reporting dates to integrated the two sets of data – enhancing budget analysis

19. 19 Vulindlela What is it: In 1997 National Treasury launched the development of a new management information system known as Vulindlela. The result is a database that consolidates financial information of many different sources including finance, personnel, logistics, procurement and paymaster general systems. Purpose: Provides a central repository of very detailed spending and budget information going back as far as FY 2001/02 for each vote and provincial department including: –Programme –Subprogramme –Standard Chart of Accounts (SCOA) (e.g., econ. class, element, item, project) Also provides revenue and asset & liability (i.e., financial statement) information.