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THE USEFULNESS OF ANNUAL REPORTS TO OVERSIGHT IN THE ACCOUNTABILITY CYCLE
Jayce M NairNational Treasury: Republic of South Africa
5 August 2009
PORTFOLIO COMMITTEE ON PUBLIC ENTERPRISES
WORKSHOP 2009
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Overview of Presentation
The Constitution and oversight
PFMA requirements for tabling of annual reports
Roles of Portfolio Committees and SCOPA
Other role-players in evaluation process
Annual report oversight process
Interrogating & evaluating annual reports
Oversight of technical quality of annual reports
Oversight of entities performance
Interpreting audit and financial information
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The Constitution andOversight
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Introduction
• Legal framework - Constitutional
– Section 55(2) says the National Assembly: • “must provide for mechanisms to ensure that all executive organs of
state in the national sphere of government are accountable to it; and to
maintain oversight of the exercise of national executive authority,
including the implementation of legislation; and any organ of state.”
– Section 92(3)(b) requires that:
• “Members of Cabinet must provide Parliament with full and regular
reports concerning matters under their control.”
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Introduction
• Legal framework - Statutory– Section 40(1)(d) & 55(1)(d) of PFMA
• The Accounting Officer must submit within five months of the end of
the financial year to the Minister responsible for that Department an
Annual Report
– Section 65(1) of PFMA
• the Minister responsible for a department must table the annual report
in the relevant legislature within one month after the Minister received
the annual report.
– Section 65(2)(a) of PFMA
• a Minister who fails to table an annual report for an entity by 30
September (6 months after year end) must table a written explanation
in the legislature setting out the reasons why the report was not tabled
and indicating when the report will be tabled
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Introduction
• Importance of legislative oversight
– Are government’s priorities reflected in the strategic plans,
budgets and annual reports?
– Are service delivery targets aligned, measurable, related to
programmes, consistent across reporting periods and presented
in a straightforward and meaning manner?
– In terms of alignment: Auditor-General has found improvement in
the level of agreement of performance info across strategic plans,
budgets and annual reports
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Annual Reports:Closing the Accountability Loop
• Departments produce strategic plans setting out performance measures and targets Through the budget the executive indicates what funds are required to implement strategic plans
• The legislatures approve the budget, and so appropriate funds for the implementation of the strategic plans
• The annual reports indicate how the executive has used appropriated funds to implement strategic plans
• In 2005 the National Treasury issued the Guideline for Legislative Oversight through Annual Reports to assist legislatures as they develop processes for overseeing annual reports. The following slides summarize aspects of the guidance that legislatures may take into account as they finalize these processes.
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Roles of Portfolio Committees and SCOPA
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Roles: Portfolio Committees
• Close accountability loop by exercising oversight of service delivery
• Focus on the following:
– The technical quality of the annual reports
– The quality of performance info
– The economy, efficiency and effectiveness of service delivery
– Implementation of the entity’s service delivery improvement plan;
– Evaluating management’s explanations why service delivery was not in line with targets
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Roles: SCOPA
• SCOPA specialises as ‘protector of the public purse’
• Focus on the following:
– Financial probity
– General Report of the Auditor General
– Compliance with the PFMA
– Unauthorised expenditure
– Fruitless and wasteful expenditure
– Internal control and risk management systems
– Supply chain management and procurement
– Major financial losses suffered by government
– Corporate governance
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Links between Committees
Committees need to share information to improve the overall effectiveness of
oversight
Portfolio committees in the various clusters should consider holding joint hearings
The Public Accounts Committee should provide information to other committees on
key issues raised in the AG’s General Report
Portfolio committees may consider appointing rapporteurs to brief the Public
Accounts Committee on important issues it has identified in its oversight process
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Inputs by Other Role-players in the Evaluation Process
• Auditor-General
• National Treasury
• Constitutional institutions
• Committee researchers
• Stakeholders and the Public
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Input by other role-players (1)
Auditor-General
– Auditing of annual financial statements
– Auditing of performance information
– Performance audits of selected entities
National Treasury
– Annually prepares a Guide to the technical requirements for annual reports’
– Framework for non financial information
– Treasury do prepare a consolidated report for Cabinet on audit outcomes
Constitutional institutions
– Provide inputs to the oversight hearings dealing with issues within their mandate
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Input by other role-players (2)
Committee researchers
– Be familiar with the challenges, policies and other developments
– Review strategic plans, budgets, in-year reports and previous annual
reports
– Monitor developments in their area of focus on an ongoing basis
– Talk to the relevant treasury, auditors and other stakeholders
Stakeholders and the public
– Request subject experts to evaluate the performance of entities
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Proposed Oversight Process
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Overview of Oversight Process
Review of AG’s General Report
Timely tabling process
Late tabling process
Preparation PhaseJoint
Workshops(provincial concurrent
functions)
Report Writing PhaseAnnouncement of
completion of tabling process
Annual Report Tabling Processes
Referral to Portfolio Committees
Tabling of Oversight Reports
Ongoing Oversight Processes
Timeline
30 September
First two weeks in October
Third week in October
First week in November
Second week of November
Follow-upPhase
Preparation Phase
Referral to Public Accounts Committee
Annual Report Oversight ProcessPortfolio Committee
process
Public Accounts Committee
process
Day of Delivery
Tabling of a weekly
update of outstanding
Annual Reports
Recommendations for the
preparation of the Finance Bill
Before 31 March
Hearings Phase
Last week in October
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Oversight preparation phase
Start preparations well before 30 September
Committee staff ensure:
– members have access to all relevant documents
– identify and contact subject experts for hearings
Members’ preparations:
– read all relevant documents
– review current year’s performance compared to outcome of previous oversight
process
– consult with subject experts and other stakeholders
– prioritise issues and questions
Committee should meet prior to hearing to:
– identify key issues
– identify what they want to get out of the hearing
– prioritise certain key questions
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Oversight hearings phase
Hold hearings in period 15 to 31 October
Request Minister to give an overview of the performance of the department
Options for structuring the oversight hearings:
– A presentation by the Minister and/or the accounting officer and then a page-by-
page review of the annual report
– A presentation by the Minister and/or the accounting officer followed by a
presentation by a designated member of the Committee dealing with key issues
as identified by the Committee, followed by a question and answer session
– A presentation by the Minister and/or the accounting officer followed by inputs by
invited experts or stakeholder organisations, followed by a question and answer
session.
– A presentation by the Minister and/or the accounting officer followed by a full-
scale public hearing, followed by a question and answer session
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Oversight report-writing phase
Each portfolio committee should prepare an Oversight Report for each entity they
oversee
Oversight Reports should deal with:
– Compliance with the tabling deadlines
– Compliance with the technical requirements for annual reports
– The usefulness of the General Information section
– Comments on the entity’s reported performance
– Comments on the entity’s human resource situation and policies
– Key issues that the committee would like to draw to the entity’s attention as
regards its performance
– Recommendations in relation to any of the issues noted above
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Tabling of Oversight Reports
Oversight Reports should be tabled in the House not later than 14 November or, at
latest, before the December recess
In certain circumstances the House may consider debating certain issues contained
in the Reports
Once accepted, Reports should be sent to the relevant Minister for response to
resolutions
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Follow-up phase
Legislatures need to put in place systems to manage and track resolutions
Aim of such systems
– to bring resolutions regularly to the attention of Ministers
– to ensure Ministers respond to resolutions
– to ensure issues raised in resolutions get resolved
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Interrogating & Evaluating Annual Reports
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Aim of Portfolio Committees’ Oversight
Clear understanding of purpose of oversight helps to achieve objectives
Fulfil constitutional obligation to hold executive accountable
Ensure departments and public entities are:
– producing high quality services, economically, efficiently and effectively
– complying with constitutional and/or legislative mandates, strategic plans and
budgets
– contributing to the realisation of government’s objectives
Gather information on the views of customers and clients
Make recommendations on improving the quality and responsiveness of services
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Preparing to exerciseoversight
The oversight process is about the legislature exercising oversight of the executive in accordance with the Constitution
It is NOT about opposition parties exercising oversight of government
The committee needs to work as a team in exercising oversight
Oversight Preparation Checklist
Be ready - think about the issues and information needs well in advance of the start of the oversight process.
Be disciplined - set clear start, interim milestones and completion targets.
Be aware - know about other oversight processes that may be relevant, e.g. of other departments of entities, or of provincial departments.
Be focused - tailor the oversight process to where it can have the most impact, i.e. set clear priorities.
Be intelligent - be flexible enough to take on board new issues and options should they arise in the course of the oversight process.
Be open - consult with outside experts, organisations and clients throughout.
Be forward looking - remember that the purpose of oversight is to improve service delivery in future.
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Oversight of technical quality of Annual Reports
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Aim of overseeing technical quality
To ensure that entities’ annual reports comply with the legal and policy frameworks
for:
– the structuring of the annual reports
– the compilation of information
– tabling of annual reports
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Necessary background information
Guide for the Preparation of Annual Reports issued by National Treasury
Familiarity with the technical terms and methods used to
– describe service delivery performance
esp. economy, efficiency and effectiveness
– describe human resource issues
Strategic plans and budgets for the entity
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Typical technical focusquestions
Was the report delivered on time?
Is the report in line with the prescribed formats?
Does the layout of the report facilitate understanding?
Is the information communicated simply and clearly?
Is the report original, or are key portions copied from previous reports?
Does the report deal faithfully with each aspect of the strategic plan?
Is each measurable objective specified in the strategic plan reported on in the
report?
Is the service delivery information presented in the report reliable?
– Are the performance measures robust?
– Can the performance information be verified?
– Can the human resource information be verified?
Was an excessive amount spent on the production of the annual report?
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Oversight of Entities’ Performance
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Performance Focus in Annual Report Review
• When reviewing annual reports with a performance focus the following areas can
be examined:
– Background information
– Organisational concerns and options
– Evaluating past performance
– Evaluating future performance
– Evaluating efficiency of performance
– Evaluating human resource development
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Necessary backgroundinformation
Information on the entity
– its mandate, structure, way of operating, strengths and weaknesses
The entity’s strategic plan and budget
Information on external and internal challenges faced by the entity
Information from clients
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Organisational concerns and options
How effectively does the entity contribute to the delivery of government objectives,
as reflected in its mandate?
Should the mandate be changed to better reflect the priorities of government, and
the needs of clients?
Is there a continuing need for the functions being delivered by the entity as a
whole, and by each of its programmes?
– If not, can the entity be closed down, or certain of its programmes be
terminated?
Is there a need for new programmes?
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Evaluating Past Performance
Is the annual report transparent about the entity’s performance?
- Or is it simply a public relations document?
Has the entity met its aims, objectives and performance targets and quality
standards?
- What were the reasons for any failures?
Have the entities performance targets changed over time?
- Are targets increasing with increases in funding?
Are there examples of good practice in how the entity has delivered its services?
What changes have been made in the services provided to clients?
- How can greater client choice be provided in future?
What are clients’ views on the nature and quality of services?
- Have these views altered over time?
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Evaluating Future Performance
Are the entity’s objectives and performance targets linked to government’s overall
aims?
Are the objectives and targets sufficiently comprehensive?
Do the performance targets drive continuous improvement?
Is there continuity in the performance targets between years?
Does the entity have too many performance targets?
Are any additional/alternative performance measures and targets needed?
How well do the performance targets measure the delivery of outputs and the
achievement of outcomes?
Does the entity have the right balance between output and outcome performance
targets?
Are effective information systems in place to measure performance?
- How could these be improved?
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Evaluating Efficiency of Performance
Are there systems to identify clients’ needs and monitor the extent to which they are
met?
Has the entity delivered value for money?
� Over time, is it delivering its outputs at reduced cost?
Has the entity been innovative in managing costs and improving performance?
� What steps has it taken in this regard?
� Is there any scope for increased efficiency savings?
Are staff hampered by internal bureaucracy?
� What has been done to encourage greater flexibility and creativity in delivering
services? What can still be done?
How effective have the relationships with other entities operating in the same or
related areas been?
Have service delivery risks been managed adequately?
Does the entity comply with the Access to Information Act?
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Human resource development
Has progress been made with the implementation of the Service Delivery Improvement Plan? – Is there evidence that services are improving as a result?
What has been done to fill key vacancies?– What more can be done?
What progress has been made with employment equity? – What strategies have been adopted to promote greater equity?
What is the status of the skills development programme?– Is the programme making a difference to staff’s ability to deliver services?
How much was paid out in performance bonuses?– How much did the accounting officer and other senior managers receive as
performance bonuses? – Are these rewards in line with the entity’s delivery performance?
How many disciplinary matters are outstanding?– What is the age profile of these complaints?– What is the entity doing to ensure the speedy conclusion of matters?
How many senior management posts do consultants fill?– How will the entity reduce its reliance on consultants for routine functions?
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Interpreting Financial and Audit Info in the Annual Report
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The Annual Report
• Accounting Officer’s Review
• Audit Committee Report
• Accounting Officer’s Report
• Auditor-General Report
• Appropriation statement
• Annual Financial statements
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Annual Financial Statements
• Statement of financial performance
• Statement of financial position
• Statement of changes in Net Assets
• Cash flow statement
• Notes to the annual financial statements
• Disclosure notes and annexures
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Audit Committee Report
• An audit committee report should cover:
– Membership and attendance to committee meetings;
– the effectiveness of the internal control systems;
– the effectiveness of the internal audit function;
– the risk areas of the entity’s operations to be covered in the
scope of internal and external audits;
– Significant accounting & auditing concerns, and follow up
recommendations made by internal & external; and
– the entity’s compliance with legal & regulatory provisions.
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The Accounting Officer’s Report
• Management’s opportunity to deal with the state of financial affairs, the activities and the results of the entity
• Capacity constraints
• Entity’s business strategy going forward
• Managements response & plans to address any significant audit findings & SCOPA resolutions
• Corporate Governance Arrangements
• Entities reporting to the departments incl their compliance with PFMA
• Organisations receiving transfer payments
• Events after reporting date
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The Audit Report
• Responsibilities of various stakeholders
• Framework used to prepare the audited AFS
• Audit opinion paragraph and emphasis of matter
• Other matters:– Root causes (control environment, control activities, risk
assessment, information and communication, monitoring &
evaluation of controls)
– Governance matters
– Other reports issued during the year
– Value for money matters
– Any unaudited schedules
• Other reporting responsibilities
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Appropriation Statement
• Content:
– Includes a summary of the Appropriation Act according to the
various programme and sub-programme allocations
– Shifting and virement of funds
– The actual expenditure split as above
• Use of content for reader:
– Variances between actual performance and compliance with
adjusted budget with explanations for material variances in the
notes
– Links to the service delivery table in the AO’s review
– Efficiency of the planning processes
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Statement of Financial Performance
• Content:
– Overview of the entity’s total actual performance over the
specified period with a surplus/deficit being the difference
between amounts received and paid during the financial year
• Use of content for reader:
– Information in the appropriation statement analysed at an entity
level in the economic classification
– Understanding of the surplus/deficit: split into surplus/deficit on
Appropriated funds, Departmental receipts and Local and
foreign aid assistance.
– Extent of unauthorised expenditure for the current year
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PERFORMANCE ASSESSMENTOF STAFF
Policies & Priorities
Medium TermBudget Process
Statement of ServiceDelivery
LEGISLATURE/COMMUNITY
EXECUTIVE AUTHORITY(Outcomes)
Performance Agreement
ACCOUNTING OFFICER(Outputs)
SENIOR MANAGERS
Performance Agreement
STRATEGIC PLANSOutcomes/Outputs
SERVICE DELIVERYIMPROVEMENTPROGRAMME
(Outputs)
BUDGET (Outputs)
PERFORMANCEREQUIREMENTS
DELEGATIONS
FINANCIAL STATEMENTS/
ANNUAL REPORT
REVIEW ANDASSESSMENT
INTEGRATED FINANCIAL MANAGEMENT SYSTEM- Compilation of medium term budgets and costing of outputs- Accounting system (accrual)- Creditor, Debtor, Stock and Asset Systems - Human Resource Management System- Management information system (Financial and non-financial)
IN-YEAR MANAGEMENT
AND REPORTING(Financial & non-
financial)
INTERNALCONTROL
ASB- GRAP- GAAP
PFMA: FINANCIAL MANAGEMENT MODELPFMA: FINANCIAL MANAGEMENT MODEL
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Thank you