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
CONTENTS •
Background
•
Audit Outcomes Explained
•
Analysis of Audit Outcomes – National Departments
•
FMCMM Introduction
•
2012 FMCMM Assessment
•
Key findings
•
National Treasury Initiatives
•
Conclusion
2
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
Adverse
Disclaimer
Qualified
Financially Unqualified with Other Matters
Financially Unqualified with NO Other Matters
Severity of Opinion
Explanation
Most severe opinion
The misstatements in the financial statements are, individually or in aggregate, material and pervasive.
More severe opinion
The possible effects of the inability to obtain sufficient appropriate audit evidence could be both material and pervasive.
Severe opinion
The misstatements in the financial statements are, individually or in aggregate, material but not pervasive.
The financial statements fairly present, in all material respects, the financial position Least severe opinion of the institution but drawing attention to the users of other matters. The financial statements fairly present, in Good opinion (No all material respects, the financial position issues affecting AFS) of the institution.
ANALYSIS OF AUDIT OUTCOMES NATIONAL DEPARTMENTS Disclaimer
Adverse
Qualified
Unqualified (with findings)
Unqualified (with no findings)
70%
64% 57%
60% 47%
50%
56%
47% 40%
40%
33%
31% 19%
20%
10%
28%
26%
30%
13% 3% 0%
0%0%
14%
10% 0%0%
8% 3% 0%
3% 0%
0% 2007/08
2008/09
2009/10
2010/11
2011/12
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) 6
FMCMM LEVELS
7
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. 8
FMCMM – AVERAGE NATIONAL SCORES Average National Score 3,00 2,95
2,93
2,90
2,88
2,85
2,80 2,75 2,70
2,75
2,65 2,60
2010
2011
2012
9
FMCMM – % PROGRESS MADE (2011 – 2012) Progress made - % of Departments 2011
Progress made - % of Departments 2012
100%
90% 78%
80% 70%
60%
61%
50% 40%
35%
30%
22%
20% 10%
0%
0%
Improved
Deteriorated
4% Unchanged
10
FMCMM - % DEPARTMENTS PER LEVEL RANGE % of departments per levels range 2011
% of departments per levels range 2012
100%
90% 80%
68%
70%
70%
60% 50% 40%
25%
30%
30%
20% 10% 0%
7% 0%
2.00-2.70
2.71 - 2.97
2.98 - 3.00
11
FMCMM – MATURITY LEVELS PER FUNCTIONAL AREA 2010
2011
2012
2,93
2,75
2,88
2,94
2,91
2,97
2,93 2,78
2,93
2,89 2,77
2,94
2,91
2,87
2,94
2,89 2,79
2,75
2,6
Transfer Payments
National Average
2,62
2,7
2,76
2,81
2,8
2,78
2,87
2,9
2,88
3
2,5 2,4 Asset Compensation Management of Employees
General
Goods and Services
Liability Management
Revenue Management
12
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 13
FMCMM – AVERAGE % OF NON COMPLIANCE PER FUNCTION Average % of non-compliance per function 2011
Average % of non-compliance per function 2012
30% 25%
27%
20% 18%
19% 17%
15% 10%
5%
20%
19%
19%
15%
12% 7% 5%
5%
7%
5%
6%
3%
0% Asset Compensation Management of Employees
General
Goods and Services
Liability Revenue Management Management
Transfer Payments
National Average
14
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
15
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
16
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
17
THANK YOU
