PROGRESS REPORT ON THE IMPROVEMENT

OF FINANCIAL MANAGEMENT - 2012

STANDING COMMITTEE ON PUBLIC ACCOUNTS

Presenter: Mr. Freeman Nomvalo | Deputy Director-General - National Treasury | 26 March 2013

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CONTENTS

• Background

• Audit Outcomes Explained

• Analysis of Audit Outcomes – National Departments

• FMCMM Introduction

• 2012 FMCMM Assessment

• Key findings

• National Treasury Initiatives

• Conclusion

Background

• Public Finance Management Act (Act 1 of 1999) took effect 12 years ago

• FMCMM was developed in 2008 after being used by Auditor-General

• Audit Outcomes remain an independent and objective measure of the financial

health of institutions

• Presentation covers report to SCOPA and SCOF on improvements in Financial

Management in preceding year (2011/12)

AUDIT OUTCOMES - EXPLAINED

Audit Opinion Severity of Opinion Explanation

Adverse Most severe opinion

The misstatements in the financial

statements are, individually or in

aggregate, material and pervasive.

Disclaimer More severe opinion

The possible effects of the inability to

obtain sufficient appropriate audit

evidence could be both material and

pervasive.

Qualified Severe opinion

The misstatements in the financial

statements are, individually or in

aggregate, material but not pervasive.

Financially Unqualified

with Other Matters Least severe opinion

The financial statements fairly present, in

all material respects, the financial position

of the institution but drawing attention to

the users of other matters.

Financially Unqualified

with NO Other Matters

Good opinion (No

issues affecting AFS)

The financial statements fairly present, in

all material respects, the financial position

of the institution.

ANALYSIS OF AUDIT OUTCOMES

0%

10%

20%

30%

40%

50%

60%

70%

2007/08 2008/09 2009/10 2010/11 2011/12

3% 0% 0%

3% 3% 0% 0% 0% 0% 0%

31%

40%

33%

26%

14%

47% 47%

57%

64%

56%

19%

13% 10%

8%

28%

NATIONAL DEPARTMENTS

Disclaimer Adverse Qualified Unqualified (with findings) Unqualified (with no findings)

FMCMM - INTRODUCTION

• Tool to assess the financial management maturity departments

• Comprises a set of 583 questions

• Framework for strengthening financial management

• The Model consists of six (6) progressive levels of maturity

• Levels 1 - 3 focus on development and implementation of

frameworks and policies.

• Levels 4 - 6 measure optimal use of information and resources

to achieve objectives.

• Functional areas tested: Revenue Management; Asset

Management; Liability Management; Goods and Services;

Compensation of Employees; Transfer Payments and General

(IT and General Controls)

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FMCMM LEVELS

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FMCMM – 2012 ASSESSMENT

• Objective: To measure the level of progress made by

departments in addressing weaknesses identified during

the 2011 assessments

• Focus on questions previously answered “No” and “Partial”,

indicating limitations in those areas.

• Focussed approach to address weaknesses and

improvements.

• Results show a steady improvement in financial management

and correlates with audit outcomes.

• Results indicate that partnerships between departments and

National Treasury are yielding desired results of improving

financial management.

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FMCMM – AVERAGE NATIONAL SCORES

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2,60

2,65

2,70

2,75

2,80

2,85

2,90

2,95

3,00

2010 2011 2012

2,75

2,88 2,93

Average National Score

FMCMM – % PROGRESS MADE (2011 – 2012)

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0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Improved Deteriorated Unchanged

61%

35%

4%

78%

0%

22%

Progress made - % of Departments 2011 Progress made - % of Departments 2012

FMCMM - % DEPARTMENTS PER LEVEL RANGE

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0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2.00-2.70 2.71 - 2.97 2.98 - 3.00

7%

68%

25%

0%

70%

30%

% of departments per levels range 2011 % of departments per levels range 2012

FMCMM – MATURITY LEVELS PER FUNCTIONAL AREA

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2,4

2,5

2,6

2,7

2,8

2,9

3

AssetManagement

Compensationof Employees

General Goods andServices

LiabilityManagement

RevenueManagement

TransferPayments

NationalAverage

2,6

2

2,7

8

2,7

6

2,7

9

2,7

7

2,7

8

2,7

5

2,7

5 2,8

1 2

,88

2,8

7

2,8

9

2,8

9

2,9

3

2,9

1

2,8

8

2,87

2,94

2,9

1

2,94

2,93

2,97

2,94

2,93

2010 2011 2012

FMCMM – WEAKNESSES INDENTIFIED

• Lack of documented processes and procedures

• High vacancy rates

• Strategies and plans not implemented

• Lack of understanding of risks and controls

• Lack of skilled personnel and training

• Excessive use of contractors for recurring activities

• Lack of systems to improve processes

• Poor compliance environment and culture

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FMCMM – AVERAGE % OF NON COMPLIANCE

PER FUNCTION

14

0%

5%

10%

15%

20%

25%

30%

AssetManagement

Compensationof Employees

General Goods andServices

LiabilityManagement

RevenueManagement

TransferPayments

NationalAverage

27%

18% 19%

17% 19%

15%

20% 19%

12%

5%

7%

5% 7%

3%

5% 6%

Average % of non-compliance per function 2011 Average % of non-compliance per function 2012

INITIATIVES TO ADDRESS KEY FINDINGS

• Strategic support plans and Corrective plans

• Creating synergies with leadership and oversight structures

• Financial management capacity and skills development

• Risk management initiatives

• Supply Chain Management Initiatives (MAWG)

• OAG – Specialised Audit Services Unit

• Public Sector Audit Committee Forum

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INITIATIVES TO ADDRESS KEY FINDINGS cont.

• National Treasury CFO Handbook

• National Treasury Departmental Reporting Framework

• Interim Financial Statements

• Contracts Management Frameworks

• Revision of the FMCMM Model

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CONCLUSION

• Results indicate the challenges yet to be overcome but also the

substantial progress made to achieve sustainable financial management

in departments.

• Management should set the right tone on the severity of non-compliance

and take appropriate action on transgressors.

• National Treasury will continue to provide support to departments in the

form of FMCMM assessments and results; Strategic Support Plans and

Corrective Plans

• The onus lies with those charged with governance to bring impetus to the

process of improving financial management; HOWEVER –

• It is the responsibility of every government official to ensure adequate

financial management in order to further the service delivery objectives of

each government department for the citizens of South Africa

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THANK YOU