Part C: Provincial Public Entities
Note that some technical corrections have been incorporated below
(note correction by replacing of "Gauteng" in this line)
Any subsidiary or entity under the ownership control of all the above public entities
Part D: Provincial Government Enterprises
EXCLUSIONS FROM REVENUE FUNDS
In terms of section 13 (1) or 22(1)
1. SA Schools Act (covering school fees)
DIRECT CHARGES AGAINST NATIONAL REVENUE FUND
Payments in terms of the following Acts -
Remuneration and Allowances of Deputy Presidents, Ministers and Deputy Ministers Act, 1994 (Act 53 of 1994) (Covering the salary of the Deputy President - section 4(a));
REPEAL OF LEGISLATION
No. and year of act
Short title
Extent of repeal
(a) Act No. 66 of 1975
Exchequer Act, 1975
The whole, except sections 28, 29,30
Act No. 106 of 1976
Financial Arrangements with the Transkei Act, 1976
The whole
Act No. 93 of 1977
Financial Arrangements with Bophuthatswana Act, 1977
The whole
Act No. 105 of 1979
Financial Arrangements with Venda Act, 1979
The whole
Proclamation No. R.85 of 1968
South-West Africa Constitution Act, 1968 (Act No. 39 of 1968)
Part 3
Act No. 67 of 1980
Railways and Harbours Acts Amendment Act, 1980
Section 19
Act No. 29 of 1981
Railways and Harbours Acts Amendment Act, 1981
Section 21
Act No. 118 of 1981
Financial Arrangements with Ciskei Act, 1981
The whole
Act No. 100 of 1984
Exchequer and Audit Amendment Act, 1984
The whole
Act No. 9 of 1989
Legal Succession of the South African Transport Services Act, 1989
Schedule 2 Part 6 of the Act insofar as it relates to the Exchequer Act, 1975
Act No. 120 of 1991
Finance Act, 1991
Sections 14, 15 and 16
Act No. 96 of 1992
Part Appropriation Acts Abolition Act, 1992
The whole
Act No. 69 of 1993
Exchequer Amendment Act, 1993
The whole
Act No. 123 of 1993
Finance Act, 1993
The whole
Act No. 142 of 1993
Exchequer Second Amendment Act, 1993
The whole
Act No. 182 of 1993
Exchequer Third Amendment Act, 1993
The whole
Act No. 41 of 1994
(b)Act No 93 of 1992
Finance Act, 1994
Reporting by Public Entities Act, 1992
Sections 17 and 18
(c) Act No. 66 of 1975
Exchequer and Audit Act, 1975
The whole insofar as it is in force in the area of the former Republic of Transkei
Act No. 102 of 1976
Finance Act, 1976
Sections 23, 24 and 25 insofar as it is in force in the area of the former Republic of Transkei
(d) Act No. 29 of 1992 (Bophuthatswana)
Exchequer Act, 1992
The whole
Act No. 16 of 1993 (Bophuthatswana)
Exchequer Amendment Act, 1993
The whole
(e) Act No. 66 of 1975Act No. 111 of 1977
Finance Act, 1977
Sections 9, 10 and 11 insofar as it is in force in the area of the former Republic of Venda
Act No. 94 of 1978
Finance Act, 1978
Sections 12, 13 and 14 insofar as it is in force in the area of the former Republic of Venda
Proclamation No. R.85 of 1979
Exchequer and Audit Proclamation
Sections 16 and 17 insofar as it is in force in the area of the former Republic of Venda
Act No. 21 of 1983 (Venda)
Exchequer and Audit Amendment Act, 1983
The whole
Act No. 18 of 1987 (Venda)
Exchequer and Audit Amendment Act, 1987
The whole
Act No. 28 of 1989 (Venda)
Exchequer and Audit Amendment Act, 1989
The whole
Proclamation No. 25 of 1993 (Venda)
Exchequer and Audit Amendment Act, 1993
The whole
(f) Act No. 28 of 1985 (Ciskei)
Exchequer and Audit Act, 1985
The whole
MEMORANDUM ON THE OBJECTS OF THE PUBLIC FINANCIAL MANAGEMENT BILL, 1999
The Public Financial Management Bill, 1999, gives effect to sections 213, 215, 216, 217, 218 and 219 of the Constitution of the Republic of South Africa, 1996 (Act No. 108 of 1996). These sections require national legislation: to establish a National Treasury, to introduce generally recognised accounting practices, to introduce uniform treasury norms and standards, to prescribe measures to ensure transparency and expenditure control in all spheres of government, and to set the operational procedures for borrowing, guarantees, procurement and oversight over the various National and Provincial Revenue Funds.
This Bill is being split into two bills to comply with the constitutionally determined procedures for the passage of bills which affect both the national and provincial governments. The Bill is being passed as a section 75 Bill which will only apply to the national government, with most references to provinces removed from this Bill. The numbering of the consolidated bill is being retained, hence the missing numbers in the section 75 Bill. A second Bill will amend the section 75 Act after its enactment - it is this bill that will broaden the provisions to apply to provinces. This second bill will be introduced in Parliament in terms of the section 76(1) procedure as outlined in that section of the Constitution.
2.1 CURRENT POSITION
2.2 National departments are governed by the Exchequer Act (No 66 of 1975), whilst provinces are governed by their own provincial Exchequer Acts. Other public entities are governed by their own legislation or the Reporting of Public Entities Act
2.2 Financial accountability is undermined by the fact that different legislation applies for different entities. Further, existing legislation regulating financial management is narrowly focused on expenditure control.
3. BACKGROUND AND APPROACH
3.1 The Public Financial Management Bill gives effect to section 216 (1) of the Constitution of the Republic of South Africa, 1996 (Act 108 of 1996), which requires national legislation to "establish a national treasury and prescribe measures to ensure both transparency and expenditure control in each sphere of government, by introducing -
(a) generally recognised accounting practice;
(b) uniform expenditure classifications; and
(c) uniform treasury norms and standards".
3.2 The Bill also gives effect to other sections in Chapter 13 of the Constitution. These sections are:
(a) Section 213 that limits exclusions and withdrawals from the National Revenue Fund through an Act of Parliament.
(b) Section 215 which notes that budgets and the budgetary process "must promote transparency, accountability and the effective financial management of the economy, debt and the public sector" and for national legislation to "prescribe" budget formats for all the spheres of government.
(c) Section 217 on procurement to be "in accordance with a system which is fair, equitable, transparent, competitive and cost-effective".
(d) Section 218 on the conditions for the issue of guarantees by a government in any sphere.
(e) Section 226 that limits an exclusion from a provincial revenue fund through an Act of Parliament.
(f) Sections 100 and 216 on intervention by the national government when an organ fails to perform an executive function related to financial management, circumstances under which funds may be withheld.
3.3 The Bill adopts an approach to financial management which focuses on outputs and responsibilities rather than the rule-driven approach of the current Exchequer Acts.
3.4 This Bill assumes that the political head of a department (Cabinet Minister or a provincial MEC) is responsible for policy matters and outcomes; this includes seeking Parliamentary (or provincial legislature) approval and adoption of the line-function budget vote. The head official (Director-General of a national department or provincial head of department) is responsible for outputs and implementation, and is accountable to Parliament for the financial management in the implementation of that budget. This approach is in line with the approach of the new Public Service regulations, which relies on a performance-driven system based on measurable outputs.
3.5 The Bill is part of a broader strategy on improving financial management in the public sector. The Bill itself assumes a phased approach towards improving the quality of financial management in the public sector. This Bill lays the foundation for the first phase, as it focuses on the basics of financial management, like the introduction of proper financial management systems, appropriation control and the accountability arrangements for the management of budgets. Subsequent phases will focus on the efficiency and effectiveness of programmes and best-practice financial management - these can only be systematically introduced after the basics of financial management are in place.
3.6 This Bill will replace or override the national and provincial Exchequer Acts, and supersede any other financial management provisions in other Acts.
4. KEY POLICY ISSUES
4.1 Application of this Act: Departments and Public Entities
This Bill gives effect to section 216 and other sections of the Constitution. This Bill will apply to the national and provincial spheres, and public entities under their ownership control. Parliament, provincial legislatures and independent institutions established by the Constitution are also covered in this Bill.
An important objective of this Bill is to put in place a more effective financial accountability system over public entities. All entities are required to be listed - the major public entities are listed in Schedule 2, and enjoy full managerial autonomy, with the government only able to intervene though its power as a shareholder. Other public entities are listed in Schedule 3, and enjoy various degrees of autonomy.
4.2 Composition of the National Treasury
The National Treasury comprises of the Minister together with the Departments of Finance and State Expenditure. The Minister is the head of the Treasury.
4.3 Powers of the National Treasury
The Constitution confers extensive powers on national government to determine the financial management framework over all organs of state, in all spheres of government. National government must, through national legislation, determine uniform treasury norms and standards.
The National Treasury is further expected to monitor and enforce these norms. The National Treasury, therefore, not only implements the budget of the national government, but plays an oversight role over the practices of other organs of state in all spheres of government.
4.4 Establishment of Provincial Treasuries - their Role and Function
This Bill establishes provincial treasuries, which are responsible for preparing and managing provincial budgets, and enforcing uniform treasury norms and standards as prescribed by the National Treasury and this Act. Note that this chapter is excluded in the first bill as it applies to provinces, and has to be in the second section 76 Bill.
4.5 This Bill confers specific responsibilities on accounting officers. The Bill vests four key responsibilities, which are:
(a) the operation of basic financial management systems, including internal controls in departments and any entities they control
(b) to ensure that departments do not overspend their budgets;
(c) to report on a monthly and annual basis, including the submission of annual financial statements two months after the end of a financial year; and
(d) to publish annual reports in a prescribed format which will introduce performance reporting.
Accounting officers who are negligent and make no effort to comply with these responsibilities will face strict disciplinary sanctions, including dismissal. Similar sanctions will apply to treasury officialsfailing to carry out their responsibilities. The new Public Service Act regulations and the trend towards performance contracts will complement this approach.
Similar fiduciary responsibilities and sanctions are also outlined for the boards (called accounting authorities) of public entities.
4.6 Voting by main division and virement
The Bill requires Parliament to vote by programme("main divisions within a vote") rather than departmental votes. This will require further information on outputs per programme, and limit the powers of accounting officers to move funds between programmes. Such movement or virement is restricted to 8% of the total allocation for a programme.
4.7 Improved information and timely submission of financial statements
The Bill aims to address the problem of the late submission of financial statements within government, to comply with the constitutional obligations for generally recognised accounting practices and greater transparency, and to improve financial management and accountability through better and more timely information flows.
5. SUMMARY OF BILL
Chapter One of the Bill deals with definitions, objects, application and amendment of this Bill. The Bill will apply to national and provincial government institutions, which includes national and provincial departments, and the entities under their ownership control. Key definitions to note are those of ownership control, government enterprises, main division within a vote, unauthorised, irregular and fruitless and wasteful expenditure. A procedure to amend this Bill is included and is intended to prevent other Acts of Parliament from amending or inadvertently by-passing the provisions of this Bill.
Chapter Two of the Bill establishes the National Treasury, deals with its composition, functions, powers and responsibilities. The National Treasury is comprised of the Minister and the Departments of Finance and State Expenditure. The Minister is empowered to delegate the day-to-day operations of the Treasury to the heads of the two departments. The National Treasury is empowered to develop the overall macroeconomic and fiscal framework, coordinate intergovernmental fiscal relations and the budget-preparation process, manage the implementation of a budget and promote and enforce revenue, asset and liability management. The National Treasury is also empowered to determine a banking and cash management framework, and is empowered to require banks to provide information on the banking accounts of national and provincial institutions. The chapter also gives effect to sections 213 of the Constitution, on the management of the National Revenue Fund, any exclusions to depositing money received, and the authorization required before any expenditure.
Chapter Three establishes provincial treasuries and deals with their composition, powers and functions, and the management of provincial revenue funds.
Chapter Four on the Budget process gives effect to section 215 of the constitution on the timing and content of national and provincial budgets, and the reporting requirements that will promote greater transparency in the implementation of a budget. It also outlines what adjustments budgets must deal with, and also outlines the minimum content for multi-year budgets. This section also contains a clause on unfunded mandates.
Chapter Five ensures that all national and provincial institutions and entities have accounting-officers, and spells out their responsibilities, and the disciplinary sanctions that will apply in the event of negligence in fulfilling these responsibilities. This chapter obligates accounting officers to produce monthly and annual financial reports for their political heads (executive authority), and outlines the responsibilities for political heads and accounting officers to prevent overspending on budgets. The shifting of funds between programmes (or main divisions within a vote) or virement is also dealt with in this bill.
Chaper Six of the Bill ensures that all public entities are listed in two Schedules. Schedule 2 covers the major public entities, and confers maximum autonomy to these entities. Schedule 3 covers all other public entities with varying degrees of autonomy. This chapter oulines the fiduciary and other responsibilities of the governing boards of these entities, similar to the responsibilities of accounting officers.
Chapter Seven covers the responsibilities of Ministers and MECs, who are referred to as the executive authorities of departments and public entities.
Chapter Eight of the Bill outlines general principles on borrowing and the issuing of guarantees. This chapter gives effect to section 218 of the Constitution on the issuing of guarantees. The chapter also regulates the borrowing operations of the national government, and determines the person who can borrow on behalf of any national or provincial government entity. It makes illegal any other forms of borrowing or financial commitment, with strict sanctions applying.
Chapter Nine of the Bill lists the areas over which the National Treasury is empowered to issue uniform norms and standards.
Chapter Ten of the Bill defines financial misconduct, and deals with the procedures for disciplining those public officials guilty of financial misconduct. It also includes a provision for criminal prosecution to apply where there is gross financial misconduct.
Chapter Eleven establishes an Accounting Standards Board which will have the power to determine the generally recognised accounting practices for the public sector.
Chapter Twelve deals with transitional and other miscellaneous issues related to the implementation of this Bill and when it takes effect. Some of the provisions of the Bill cannot be implemented immediately, and could take up to five years to implement fully (eg the sections relating to consolidated financial statements). The transitional arrangements will allow the Minister to phase in such provisions.