IN-YEAR MANAGEMENT, MONITORING AND REPORTING SYSTEM (SECTION 32 REPORTS)

Provincial Budget AnalysisIntergovernmental Relations

National Treasury08 August 2006

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Outline

• Background• Legal requirements• In-year monitoring process• Reports generated• Practical examples

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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 managementRevenue managementCash flow managementMovements in bank balancesSuspense accounts

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Legal Requirements

• Section 32 of PFMA– Publishing reports on state of budgets

• Section 40(4) of PFMA • Sections 24 to 27 and 29(4) of the

Division of Revenue Act, 2006 (CGs)• Acts require monthly expenditure

and revenue reporting to the provincial treasuries and National Treasury

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• Accountability Cycle:– Strategic and Performance Plans– Budget– In-year monitoring (IYM) (Inform SP targets)– Quarterly Performance Reports (piloting)– 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

In-year Management, Monitoring and Reporting

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In-year Management, Monitoring and Reporting

• Monthly reports facilitate:– Flow of information– Internal control measures to deal with problems

timeously (Early Warning System)– AO is more proactive– Use data to make decisions– Compilation of annual reports and financial

statements which completes the accountability cycle– Assist the external auditor– Reduced timeframe for audit - strengthen

accountability to legislatures– Reports consolidated and published in Government

Gazette

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• 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

Monthly Reporting Process (1)

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• Formats – – Require variances between the actual

result for the period and that budgeted– Projections to the end of the financial year– Reasons for deviations

• What has happened so far?• What will happen for the rest of the

year?• What actions to be taken to achieve

agreed plan?

Monthly Reporting Process (2)

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Monthly Reporting Process (3) • Number of steps in the process to convert the

millions of individual transactions that occur as a result of government activities into the information to be published monthly– Undertake reconciliations– Check allocation of transactions– Clear errors and suspense items– Balance various type of accounts– Return date 15th of each month to provincial treasuries and

22nd of each month to National Treasury– System resources: BAS, PERSAL and Vulindlela– From 1 April 2004:

• New Economic Reporting Format• Migration to BAS• Standard Chart of Account (SCOA)• Single version of the truth

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The In-Year Monitoring ProcessDept IYM Data file + Dept IYM report signed by HOD

Provincial Treasury

Collates and imports all departmental IYM data file into treasury IYM Model (built in function) to generate provincial IYM report

• Provincial Treasury updates IYM Model with all Dept IYM data files and generates IYM data file

National Treasury

• Imports IYM Data file into IYM Model also receives all dept signed IYM summary reports via post before 25th of month + prov treasury spending / variance report

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• Screen Shots – IYM Model

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Office Of The Premier

Provincial Legislature

Health

Social Development

Roads And Public Works

Education

Housing,Local Government And Traditional Affairs

Agriculture

Economic Affairs,Environment And Tourism

Transport

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Provincial Treasury

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Safety And Liaosn

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Conditional Grants : Flow of information

Provincial TreasurySubmit a report within 22 days after the end of each month as part of consolidated monthly

report.

National Treasury

National departmentSubmit a report within 20 days after

the end of each month.

Provincial departmentSubmit a report within 15 days after the end of each month.

Legislation

* Public Finance Management Act.

* Division of Revenue Act.

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• Screen Shots – Section 32 Publication

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• Screen Shots – Press Release

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• Screen Shots – IYM Dataset

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• Section 32 Publication

• Press Release

• Technical Committee for Finance (TCF)

• Budget Council

• President’s Co-ordinating Council (PCC)

• Select Committee for Finance

Reports Generated

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• 1st Quarter report (practical examples):– 1st Q 2005/06 to 1st Q 2006/07 spending

growth• Why low growth in Education (2,2%), in

particular Personnel (1,4%)?

– Why drop in expenditure from 4th Quarter in 2005/06 (R59,9bn) to 1st Quarter in 2006/07 (R38,4bn)?

– Are projections a reasonable reflection of likely expenditure outcomes for the financial year?

– Spending on Social Welfare Services (Social Development) at 17,7% - why lower than aggregated average?

Interpretation of Reports (1)

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Movement from 1st Quarter 2005/06 to 1st Quarter 2006/07

Table: Movement between 1st Quarter 2006/07 and 1st Quarter 2005/06 Financial Years

Expenditure

Expenditure as % of main

budget

Expenditure

Expenditure as % of main

budget

Expenditure movement

% 1st Q 2005/06 to

1st Q 2006/07 growth

Eastern Cape 5 789 059 21,6% 5 234 430 22,4% 554 629 10,6%

Free State 2 637 411 22,7% 2 424 998 22,9% 212 413 8,8%

Gauteng 6 469 031 18,8% 5 768 724 21,7% 700 307 12,1%

Kw aZulu-Natal 7 731 421 20,8% 7 540 099 23,0% 191 322 2,5%

Limpopo 4 758 653 20,8% 4 364 826 21,1% 393 827 9,0%

Mpumalanga 2 826 245 22,1% 2 754 297 24,4% 71 948 2,6%

Northern Cape 1 032 395 23,5% 953 525 25,6% 78 869 8,3%

North West 3 084 011 21,4% 2 784 803 21,7% 299 208 10,7%

Western Cape 4 056 585 22,1% 3 512 943 21,4% 543 642 15,5%

Total 38 384 811 21,0% 35 338 645 22,3% 3 046 166 8,6%

Social services 30 256 886 22,2% 28 192 023 23,4% 2 064 863 7,3%

Education 17 482 245 22,1% 17 108 223 24,4% 374 022 2,2%

Health 11 840 289 22,9% 10 224 296 22,3% 1 615 993 15,8%

Social w elfare services1. 934 352 17,7% 859 504 20,0% 74 848 8,7%

Non-social services 8 127 925 17,3% 7 146 622 18,9% 981 303 13,7%

Total 38 384 811 21,0% 35 338 645 22,3% 3 046 166 8,6%

of which

Compensation for employees 24 484 508 23,3% 23 346 380 24,1% 1 138 127 4,9%

Payments for capital assets 2 448 084 16,7% 1 899 237 16,0% 548 847 28,9%

Conditional grants1. 4 191 917 16,2% 3 417 373 18,3% 774 544 22,7%

1. The 2005/06 financial year excludes Programme 2: Social assistance grants of provincial social development departments which was transferred to the SA Social Security Agency (SASSA) with effect from 01 April 2006.

R thousand

Actual as at 30 June 2006 (2006/07)

(Section 32)

Actual as at 30 June 2005 (2005/06)

(Pre-audited outcome)

Movement from 1st quarter 2005/06 to 1st

quarter 2006/07

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Provincial Aggregated Expenditure

Table: Provincial Aggregated Budgets and Expenditure as at 30 June 2006

Eastern Cape 26 827 124 26 399 041 5 789 059 21,6% – 428 083 1,6% 15,1% 554 629 5 234 430 10,6%

Free State 11 626 182 11 713 094 2 637 411 22,7% -86 912 – -0,7% 6,9% 212 413 2 424 998 8,8%

Gauteng 34 459 739 35 330 455 6 469 031 18,8% -870 716 – -2,5% 16,9% 700 307 5 768 724 12,1%

Kw aZulu-Natal 37 191 610 37 429 891 7 731 421 20,8% -238 281 – -0,6% 20,1% 191 322 7 540 099 2,5%

Limpopo 22 898 789 23 476 215 4 758 653 20,8% -577 426 – -2,5% 12,4% 393 827 4 364 826 9,0%

Mpumalanga 12 804 980 13 156 691 2 826 245 22,1% -351 711 – -2,7% 7,4% 71 948 2 754 297 2,6%

Northern Cape 4 395 336 4 421 160 1 032 395 23,5% -25 824 – -0,6% 2,7% 78 869 953 525 8,3%

North West 14 400 053 14 818 289 3 084 011 21,4% -418 236 – -2,9% 8,0% 299 208 2 784 803 10,7%

Western Cape 18 375 590 18 390 107 4 056 585 22,1% -14 517 – -0,1% 10,6% 543 642 3 512 943 15,5%

Total 182 979 403 185 134 944 38 384 811 21,0% -2 583 624 428 083 -1,2% 100,0% 3 046 166 35 338 645 8,6%

Net -2 155 541

% (Over) / under of

main budget

% share of total

provincial expenditure

R thousand

Difference 2005/06 vs

2006/07

Year-on-year

growth

2005/06: Actual as at

30 June 2005

Main budgetProjected Outcome

Actual as at 30 June

2006

Actual as % of main budget

(Over) Under

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• It should be noted that one cannot necessarily draw meaningful conclusions by only looking at the first quarter financial results given the fact that it is relatively early in the financial year

• Provinces are projecting to overspent by R2,1 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 (2)

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Thank You