Oxford Social Science

Public Sector Financial Management IV
PFB400
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ASSIGNMENT
Semester 1 2024
Module name Public Sector Financial Management IV
Module Code PFB 400
Due date 22 April 2024
Total Marks 75
This assignment is compulsory and must be submitted through CANVAS,

inside the corresponding Module Class Course on or before 22 April 2024 by
24:00.
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COVER PAGE
Please include the following information on the first page of the assignment:
Name, Surname, Student Number and Module Code.
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PDF document (File > Save As > Save as Type: PDF).
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[STUDENTNUMBER] [MODULECODE] [SURNAME].pdf
E.g. 21111234 BCU101 Surname.pdf
LIST OF REFERENCES
Refer to the STADIO Referencing guide HERE for guidance.
Once you have completed your assignment and saved it, you must log into Canvas
to submit your assignment by the due date.
©STADIO Assignment – 2024 Semester 1 PFB400 Public Sector Financial Management IV

Page 1 of 3
IMPORTANT: Ensure that you submit your assignment answers on or before the due
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Page 2 of 3
Question 1 (25 marks)
You have a friend who does well with his business called Extreme Adventures. He knows
that you are a civil servant and understand how government works, and in this regard,
he hopes that you can help him.
He has heard that there is a draft entitled Call for comments on proposed amendment
to the national policy for determining school calendars for public schools in South Africa
He is in a chat group with people who are also in the same industry and they would like
to make some observations to the relevant authorities. He has asked you to come and
brief them about their options. Prepare a document in which you explain the different
routes open to them. You need to mention three options but discuss in detail the option
of the PMG.
The CFO has expressed his concerns about the latest audit outcomes which indicated
that line managers do not understand how resources are acquired, allocated, utilised
and reported on. This, together with a limited understanding of their roles and
responsibilities relating to public sector financial management, negatively affects service
delivery. As you know, both the financial and operational managers are inextricably
bound in ensuring that services are provided within the context of all-encompassing
public administration and sound public financial management. The CFO asked you to
prepare a briefing in tabular format to clarify the responsibilities of line and financial
managers regarding public financial management.
Required:
Based on the above, prepare your speaker notes in tabular format and do not exceed
three (3) pages.
The focus of financial accounting is on the recording of financial transactions. To a large

extent, the flip side of the coin could questionably be argued to be management
accounting.
Write an essay in which you explain the use of management accounting, whom it serves
and how it benefits the institution. Your essay must clearly show an introduction, a
general discussion and a conclusion. Non-compliance in respect of the format and direct
copying and pasting will incur a penalty of 5 marks.
Assignment Total: 75 marks

Page 3 of 3
Table of Contents
Heading Page number
WELCOME 1
MODULE PURPOSE AND OUTCOMES 1
Topic 1 Public Financial Management (PFM) in Context 4

1.1 Introduction 4
1.2 The Role of Financial Management in Public Finances 5
1.3 The Key Elements of Public Financial Management (PFM) Success 6
1.4 Objectives of PFM 9
1.5 Creating Context 11
1.6 Conclusion 13
Topic 2 South African Public Sector Financial Management Reform 16

2.1 Introduction 16
2.2 Summary of the Public Finance Management Act, Act No. 1 Of 1999
(With Amendments) 24
2.3 Comparative Studies 29
2.4 Conclusion 30
Topic 3 Legal Frameworks Supporting Public Financial Management 32

3.1 Introduction 33
3.2 Legislative Frameworks 33
3.3 South African Legal Framework for PFM 40
3.4 International Perspectives 41
3.5 Conclusion 44
Topic 4 Public Sector Accounting and Reporting 47

4.1 Introduction 47
4.2 Accounting Explained 48
4.3 Types of Accounting 50
4.4 Accounting Policy 55
4.5 Bases of Accounting 57
4.6 Accounting Cycle in Government 61
4.7 Systems Supporting Accounting and Accountability 65
© STADIO (Pty) Ltd Public Sector Financial Management IV PFB400

4.8 Departmental Debt 72
4.9 Municipal Debt: A 2017 Case Study 77
4.10 Availability of Financial Information 90
4.11 Conclusion 91
Topic 5 Oversight and Control by Parliamentarians and Other Non-Financial

Functionaries 93
5.1 Introduction 93
5.2 Parliamentary Accountability and Oversight 95
5.3 The Line Manager 114
5.4 The People 124
5.5 Conclusion 132
ABBREVIATIONS 135
REFERENCES 137

List of Tables
Table Page number
Table 5.1 Roles of Line/Operational and Financial Managers 115

Table 5.2 PFMA-Allocated Responsibilities for Other Officials Explained 119

Welcome
Welcome back to Public Sector Financial Management. It is most encouraging to

know that there are citizens such as yourself who are prepared to delve even
deeper than before into this discipline. You are very bold and for that you must
be affirmed. We are very proud of the course we have prepared for you and hope
that you are going find it extremely challenging, both academically and
functionally. It goes without saying that every step you take towards completing
this course is a step the country takes towards solidifying its place in the
sovereign state of nations. We will never be able to claim to have arrived when
it comes to public financial management, but we certainly want to set the
standard for Africa and eventually all developing nations. May you be imbued
with the fortitude to run the race and eventually claim the prize.
Module Purpose and Outcomes
1. Distinguish between different financial management elements and models.

2. Discuss the PFM reforms in South Africa and how the outcome compares
with another African country, namely Nigeria.
3. Understand and explain fiscal responsibility laws in the light of international
standards.
4. Provide an overarching explanation of accounting within the public sector
and how it impacts accountability.
5. Identify and describe some of the more prominent control mechanisms that
enhance PFM that are not necessarily included in the PFMA.
Note
Any reference to masculine gender may also imply the feminine. Singular may
also refer to plural and vice versa.
Prescribed Reading
Although there is no single prescribed textbook for this subject, the primary
source for this course is stated below:

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Cangiano, M., Curristine, T. & Lazare, M. (eds) 2013. Public financial
management and its emerging architecture. International Monetary Fund.
HJ9733.P83.
ISBN: 978-1-47553-109-1 (paper)
ISBN: 978-1-47551-219-9 (ePub)
ISBN: 978-1-47551-220-5 (Mobipocket)
ISBN: 978-1-47551-221-2 (PDF)
Note, however, that it may be difficult and time-consuming, and will

be expensive, to order a personal copy of this IMF publication. Therefore,
STADIO has gone to much effort and expense to provide you with rapid and
free online access to the book (other than your possible Internet connectivity
costs). Follow the instructions below carefully.
There are also several other sources either quoted or indicated as foundation
material or for additional study/reading provided in the study guide.
Access the IMF Publication Provided on the Previous Page as Follows:

1. Go to the Southern Business School web page (www.sbs.ac.za).
2. Click on Student Quick Links (at the top of the page to the right).
3. Select the Electronic Journals icon.
4. Click on the EBSCOhost icon.
5. Click on EBSCOhost Research Databases.
6. Type Public Financial Management and Its Emerging Architecture into
thefirst search.
7. When the page opens, choose Public Financial Management and Its
EmergingArchitecture and click on PDF Full Text (not download).
8. Once the book has fully opened, go to the section you wish to save and
counthow many pages are involved. Then click on the Save Pages icon at
the top left.The pages will download.
9. Save the downloaded pages on your computer by clicking on the Save PDF
icon.They should save to the download folder, whereafter you can move
them toanother folder.
10. Please be economical with what you save as you cannot download more
than100 pages. You can, however, read the whole document online. You
are alsoable to cut and paste from the online document, bearing in mind
that the copyrightrestrictions apply throughout.

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Recommended Reading
You are encouraged to read as widely as possible and, if need be, use the reading
as a basis for further research. You should also note that some of the references
quoted are the best that were available at the time and where the document
does not appear at the first attempt, a little surfing/toggling through the World
Wide Web (Internet) will provide the required material. Do not be discouraged
when your requirements are not satisfied at the first attempt.

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Topic 1
Public Financial Management (PFM) in Context
Prescribed Reading
There is no prescribed textbook for this topic. You are, however, directed to some
additional reading within the topic.
1.1 Introduction
After completing this topic, you should be able to do the following:

• Explain the role of financial management in public finances.
• Identify and describe the essential elements to be considered inassessing
the effectiveness of public financial management.
• Understand the basis for financial management reform.
• Define sustainable development goals and contextualise them withinthe
South African environment.
• Have a notion of how to construct a basic assessment tool foroverarching
public financial management.
One of government’s primary responsibilities is the delivery of services. The

dynamics, especially in South Africa, within which service delivery materialises,
is not discussed here. This study guide looks primarily at public financial
management as an enabler in ensuring that services due to the “People” and
articulated in the national, provincial and local performance plans are delivered
according to the predetermined government intent and national strategy.
To explore the topic of delivering services effectively, our study directs us to start
at the top by ensuring a leadership, which epitomises strength, support and
direction. This leadership must commit to its role, embrace the onerous
responsibility of serving the people and set the standard for all of government.
Furthermore, it should possess an in-depth understanding of strategic planning
and have an inexhaustible appreciation of how government works, both politically
and administratively. To facilitate the shaping of policy and debating options,
they should also have excellent communication skills and the power to influence
arguments in favour of improved and sustained service delivery. Leaders should
therefore have a combination of soft and technical skills.

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1.2 The Role of Financial Management in Public Finances
As management cannot be divorced from financial management, the strength of

financial leadership cannot be overstated when one considers the financial
sustainability of an institution. In the South African context, the Public Finance
Management Act, Act No. 1 of 1999 (PFMA), addresses financial responsibilities
of executive authorities; apportions general responsibilities to accounting officers
(AOs); creates the space for a chief financial officer (CFO), thereby implying a
dedicated financial infrastructure; and eventually allocates responsibilities to
“other officials”, namely line officials. There is a distinct differentiation between
the role of the finance function and that of “other officials”. There is, however,
little differentiation between what is required of the AO and the impact of these
responsibilities on the line officials and the execution of their financial
responsibilities. The standard of public sector financial management therefore
resides in the strength of the leadership’s financial acumen, robust technical and
organisational skills, as well the softer skills including leadership and HR. Here
HR also encompasses cultural and behavioural aspects.
In a world that offers a position where facts appear to have alternatives,

empirical information is questioned and public officials do not instil confidence,
claims and counterclaims about self-serving politicians are rife and corruption
abounds. Therefore there are ongoing calls for greater accountability and
transparency. There has never been a time more appropriate to increase the
level of public financial management.
It has often been said that politicians campaign in poetry, but govern in prose.
The prose referred to is what the AO and his/her staff have to work with.
Politicians are invariably unaware of what it means to convert election promises
into a satisfied populace. Consequently, officials are severely challenged in
divorcing politics from policies and ultimately converting them into operational
plans. The bridge lies in the skill, at every level, to translate the political speak
of the electioneering candidate into a sound financial plan. Financial professionals
play a significant part in easing this process, but do not stand alone in the
formulation of sound and sustainable public finances. It is time to elevate the
ability of all public officials to practise more diligent and meticulous financial
management.
In the final analysis the policymakers must direct improved financial

management. The legislature may direct the process through regulating and
oversight, but it is the executive that must lead the execution of public

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administration and financial management, within its range of tasks. The
executive must be guided in the knowledge that financial management and
accountability are the primary enablers in professionalising government
accounting and service delivery. In this regard, both the employment of finance
professionals and empowering public sector leaders in the science and art of
public sector financial management will facilitate the improvement, management
and utilisation of the nation’s finances. Achieving this will ensure:
• the appropriate abilities and competence to make quality decisions on
financial management policy, planning, execution and reporting
• the ability to exercise sound judgement regarding the utilisation of resources
• that government-directed services are delivered in a manner that satisfies
the electorate, taxpayers and the eventual intended beneficiaries, all within
the ambit of service delivery.
1.3 The Key Elements of Public Financial Management (PFM)

Success
Eight key elements are necessary to create a comprehensive and coherent

system of PFM. Please note that these eight key elements do not claim to
establish best practices or to be a detailed checklist specifying exactly which
elements should be in place. They simply aim to stimulate a dialogue that, in
turn, may establish the most appropriate choices for different circumstances.
The climate for reform: The first element of PFM success necessarily is the
widespread recognition and acknowledgement that change is required, along
with a commitment from key stakeholders to effect the necessary reforms.
Governance – the legal and institutional framework: The second essential

element of PFM success is that of a well-defined legal and regulatory framework
– one that facilitates the implementation of efficient and effective public-service
arrangements. Appropriate institutions must be in place, as well as a set of
recognised codes, standards and practices.
Governance – the value system: The public entrusts taxpayer funds to the
government and expects them to be used appropriately. Yet the appropriate
attitudes and behaviour are not always culturally embedded. The third key to
PFM success is therefore an open, honest and responsible approach to the way
services are planned, executed and reported, which signifies a strong intent to
work in the public interest.

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Capability and aptitude: The fourth key to PFM success is ensuring that the
appropriate resources are available to support the application of each aspect of
PFM, particularly in terms of people and systems. Compromising on the systems
and lacking the skilled personnel to implement them negate a successful PFM
reform process.
Fiscal and policy framework: The budget is the primary deliverable of PFM
systems. It is the nucleus from which public policies are financed. A credible
budget is essential, reflecting the expected financial impact of the government’s
policies and its use of resources. As a result, the fifth element of PFM success is
that of a clearly defined and comprehensive fiscal and policy framework.
Performance management: The sixth key element is the successful

implementation of the budget, both in macro terms and at the organisational
level. The budget must be well managed, monitored and reported to achieve the
anticipated outcomes, with three things – value for money, the efficient and
effective delivery of services and financial compliance – acting as overriding
performance principles.
Reporting: Empirical evidence is emerging that highlights the positive

relationship between the degree of fiscal transparency and measures of fiscal
sustainability. Not surprisingly, then, appropriate and transparent reporting
against planned outcomes is the seventh key element of PFM success, helping
governments to be accountable for their fiscal actions.
Scrutiny and assurance: Reported information must be reliable, whether for

purposes of transparency, accountability or decision making. It must also be
capable of withstanding scrutiny from different levels and forms of review. As a
result, the eighth key element of PFM success is that of subjecting information
to effective scrutiny and assurance, thus generating confidence in its veracity.
Confidence is further enhanced by subjecting this information to an external,
independent audit. (CAPA 2013:7)
Additional context
Improving your understanding of accountability and how it enhances

transparency and improves fiscal management
The issues of transparency and accountability have also drawn the attention of
economists, among others, in the context of Public Economics (called

7
Governmental Economics at STADIO – DEC20A) in general and fiscal
policy in particular.
Fiscal transparency means being open to the public about the structure and
functions of government, fiscal-policy intentions, the public-sector accounts and
fiscal projections. It can improve fiscal policymaking by making the fiscal
authorities more accountable. Transparency-enhancing reforms could be more
effective mechanisms to make fiscal policies credible than adopting fiscal rules.
Australia, New Zealand and the United Kingdom pioneered the adoption of
transparency-enhancing measures aimed at making fiscal policymakers more
accountable. The fiscal frameworks of these countries do not prescribe specified
numerical targets, but require the fiscal authorities to disclose their fiscal
objectives regularly. These objectives may or may not take the form of
quantitative targets.
Transparency-based frameworks are more flexible than a strict rules-based fiscal

regime (which may include quite restrictive fiscal and budgetary targets), but
less flexible than discretionary frameworks (where fiscal policy, targets or
intentions, and eventually budgets, are essentially set by the government of the
day and national treasury, and may fluctuate more widely from time to time).
“The extent to which transparency-based frameworks constrain policymakers

depends on their specification and interpretation, for example whether or not
they are complemented by numerical targets. As far as the short-term and long-
term management of economies is concerned, the greater flexibility of
transparency-based regimes gives them a major advantage over rules-based
regimes (especially to policymakers who are strongly committed to prudent fiscal
policies and who therefore do not need binding by rules).” (Black et al .,
2015:369–370)
Another advantage of transparency-based regimes over rules-based ones is their

superior ability to strengthen the effectiveness of market discipline over fiscal
policymakers. “Market discipline” refers to the phenomenon that the financial
markets restrain the de facto independence of fiscal policymakers: the markets
quickly “punish” fiscal laxness by suspending lending, withdrawing capital and
increasing risk premiums on borrowed funds.
The influence of market discipline on fiscal policymaking is often benign, but

there is the danger that governments could become excessively concerned with
gaining or maintaining the confidence of markets and allow the short-term-
oriented preferences of market participants to unduly influence or bias their

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macroeconomic policy and thus budget decisions. However, the problem with
rules-based regimes is that they emphasise a small number of summary
indicators of fiscal policy and in this way foster the tendency of market
participants to judge fiscal policy on a too narrow basis. Transparency-based
regimes can strengthen the effectiveness of market discipline by ensuring that
the bigger picture receives due emphasis.
The budget and other public finance documents published regularly by the South
African government, especially the National Treasury, over many years have
received high acclaim, even internationally, in respect of the transparency they
provide regarding South African fiscal and public finance matters. However, such
documents and transparency on their own cannot guarantee cost-effectiveness
in general and effective accountability in particular. Such facets ultimately
depend on the other elements of the public finance architecture of a country.
(Black et al., 2015:369–370)
1.4 Objectives of PFM
In his 2015 paper “Public Financial Management”, Andrew Lawson, co-director of

Fiscus Limited, states:
“In order to assess a PFM system, we first need to define its objectives – the final
outcomes by which performance can be measured. It is generally accepted that
a PFM system should achieve three objectives, to which we here add a fourth ‒
the promotion of accountability and transparency. This is increasingly seen as an
objective in itself, because of its close relationship to the notion of inclusive
institutions.
• The maintenance of aggregate fiscal discipline is the first objective of a PFM
system: it should ensure that aggregate levels of tax collection and public
spending are consistent with targets for the fiscal deficit, and do not generate
unsustainable levels of public borrowing.
• Secondly, a PFM system should ensure that public resources are allocated to
agreed strategic priorities ‒ in other words, that allocative efficiency is
achieved.
• Thirdly, the PFM system should ensure that operational efficiency is
achieved, in the sense of achieving maximum value for money in the delivery
of services.
• Finally, the PFM system should follow due process and should be seen to do
so by being transparent, with information publicly accessible, and by
applying democratic checks and balances to ensure accountability.”

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There is no conflict between these objectives and the aforementioned key
elements, and the congruence achieved suggests that they should be read
together.
Additional context
How do we know whether a PFM system is performing adequately or not?
There are probably many highly complex scientific methods of assessing a PFM
system and to what extent it satisfies the needs of the people. In this study
guide, we opt for a layperson’s approach and endeavour to keep it as simple as
possible. Measuring performance against the given elements or criteria is
undoubtedly the easiest approach. This would require the selection of a set of
criteria and the measures against which to evaluate them. We have considered
two sets of criteria above and agreed that they could be considered as a
collective. One may consider the following example as an approach:
Available instruments to measure performance:

• Open Budget Index (OBI):
Available at https://www.internationalbudget.org/open-budget-survey/.
Covers:
Open budget survey (previous year results)
Open budget index rankings
Results by country
Download reports
Explore survey data and budget documents
Resources for governments
Methodology

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• Public Expenditure and Financial Accountability (PEFA) assessment
Available at https://pefa.org/content/pefa-framework.
Covers:
PEFA framework
User guidance
Assessment data and reports
Research and impact
• Public Expenditure Reviews (PER)

Available at http://boost.worldbank.org/tools-resources/public-
expenditure-review.
See also the PER placemat – methodology available at

https://www.gtac.gov.za/programmes-and-services/public-expenditure-and-
policy-analysis. Although somewhat complex, recognise how the methodology is
constructed to ensure sound performance and expenditure reviews. The steps
are as follows:
1A. Inception meeting
1B. Institutional analysis
2. Logical framework
3. Indicators
4. Expenditure analysis
5. Casting model
6. Savings, trade-offs and constraints
7. Report writing
1.5 Creating Context
PFM does not exist or operate in a void. It differs from one context to another
and Africa, and specifically South Africa, operates within a developing context.
This section creates the context and is sourced primarily from the Global
Organization of Parliamentarians Against Corruption (GOPAC) – see
http://gopacnetwork.org/publications/. At the time of writing this guide (2018)
South Africa was a member of GOPAC.
“Since 2002 the Global Organization of Parliamentarians Against Corruption

GOPAC) has established a network of like-minded parliamentarians who wish to
combat corruption in their country and globally. With chapters in 57 parliaments
worldwide, GOPAC provides support, knowledge and the exchange of ideas

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among parliamentarians at the regional and global levels. Additionally, in most
countries the chapters provide an opportunity for parliamentarians from all
political parties to collaborate and break down political walls on a key issue –
corruption; an issue which has a major impact on the implementation of the
Sustainable Development Goals (SDGs).”
The United Nations’ sustainable development goals are as follows:

• Goal 1. End poverty in all its forms everywhere.
• Goal 2. End hunger, achieve food security and improved nutrition and
promote sustainable agriculture.
• Goal 3. Ensure healthy lives and promote well-being for all at all ages.
• Goal 4. Ensure inclusive and equitable quality education and promote
lifelong learning opportunities for all.
• Goal 5. Achieve gender equality and empower all women and girls.
• Goal 6. Ensure availability and sustainable management of water and
sanitation for all.
• Goal 7. Ensure access to affordable, reliable, sustainable and modern
energy for all.
• Goal 8. Promote sustained, inclusive and sustainable economic growth, full
and productive employment and decent work for all.
• Goal 9. Build resilient infrastructure, promote inclusive and sustainable
industrialisation and foster innovation.
• Goal 10. Reduce inequality within and among countries.
• Goal 11. Make cities and human settlements inclusive, safe, resilient and
sustainable.
• Goal 12. Ensure sustainable consumption and production patterns.
• Goal 13. Take urgent action to combat climate change and its impacts.
• Goal 14. Conserve and sustainably use the oceans, seas and marine
resources for sustainable development.
• Goal 15. Protect, restore and promote sustainable use of terrestrial
ecosystems, sustainably manage forests, combat desertification,
halt and reverse land degradation and halt biodiversity loss.
• Goal 16. Promote peaceful and inclusive societies for sustainable
development, provide access to justice for all and build effective,
accountable and inclusive institutions at all levels.
• Goal 17. Strengthen the means of implementation and revitalise the Global
Partnership for Sustainable Development.
Students who have completed the introductory courses of Public Sector Financial
Management will note, even at a cursory glance, that these goals do not differ
significantly from those previously presented to the South African nation in a
state of the nation address, budget speech, medium-term budget policy

12
statement and the like. It is, however, within this context that public sector
financial management finds its raison d’être.
Additional context
Parliament’s role in implementing the Sustainable Development Goals
For this course it would help if you familiarise yourself with the content of the
GOPAC document quoted above. Attentively read Section V, Budgeting for
sustainable goals (pages 32–38).
You will note that the document has several questions for reflection. They may
deepen your understanding of the South African context. Those that follow
should pique your interest:
• “Has your parliament formally endorsed the SDGs, for example by debating
and passing a motion or resolution in the plenary?
• Does the budget submitted to parliament for review and enactment attach
an adequate explanation of how budget measures seek to progress SDG
achievement? If not, what information could be added to provide a better
picture for parliamentarians?
• What resources can parliamentarians draw upon to help them analyse
budget expenditures and assess their impact? Are there any think
tanks/academic institutions/civil-society organisations that could assist with
such analysis?”
1.6 Conclusion
Financial management is not a science divorced from all or any of the other
aspects of leadership. It is woven into the fabric of all of leadership (and for that
matter, management) at every level. It requires consistent interaction within the
machinations of directing the organisation to achieving its long-, medium- and
short-term goals and objectives. In the case of government, this means the
achievement of those strategic objectives flowing from the Constitution and
being manifested in the day-to-day lives of ordinary citizens. It is the eradication
of the consequences of the misdeeds of the past and the creation of a better life
for all. It seeks to marry the local inherent and inherited situation with
international best practices, norms and standards, and so establish sound
“business” practices as defined by international oversight bodies and the South
African government in all its configurations. Ultimately, it ensures sound resource
utilisation, effective and efficient service delivery and accountability to all

13
stakeholders and interested parties. This topic has prepared the foundation to
facilitate exactly this approach. It has provided both principles and goals in the
South African context, and when correctly understood will define your
understanding as the course progresses.
Self-Assessment Questions
1.1. Explain the role of financial leadership in public finances. (15 marks)
1.2. List and explain the eight key elements of public financial management
(PFM) success. (20 marks)
1.3. Explain how Andrew Lawson, co-director of Fiscus Limited, defines the
objectives of public financial management. (summarised: 5 marks;
complete: 10 marks)
1.4. Summarise the eight key principles and the objectives of public financial
management into a single document (explanation). (25 marks)
1.5. Prepare your own model/template against which public financial
management within your organisation may be measured. Your model must
contain at least five (and no more than ten) elements to be assessed. (25
marks)
1.6. List the United Nation’s Sustainable Development Goals. (25 marks)
1.7. Match the United Nations’ Sustainable Development Goals (SDGs) with the
priorities stipulated in the 2018 State of the Nation address. Then provide
a list of the top ten and provide reasons for your choice and ranking, for
example:
Ranking/ SONA priority

SDGs Reasons
Priority (e.g. 2017)
1 “For though we are Reduce inequality
a diverse people, we within and among
are one nation.” countries.
2 “We need to take End poverty in all
additional measures its forms
to reduce poverty.” everywhere.
n
(30 marks)

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1.8. Prepare a presentation in which you explain to non-financial managers the
role of public financial management in a developing country. Your
presentation must contain the following elements:
• Introduction/Background
• Scope
• Discussion, identifying the relevant issues
• Conclusion and/or recommendations
(25 marks)

15
Topic 2
South African Public Sector Financial
Management Reform
Prescribed Reading
2.1 Introduction

• Explain the reason for PFM reform.
• Discuss the primary factors involved in the reform process.
• Describe how the major issues are dealt with within the PublicFinancial
Management Act (PFMA).
• Provide an executive summary of the PFMA.
• Identify and make comparisons between South African and NigerianPFM
legislation.
The basis of this discussion is sourced directly from a presentation by Dr Gavin

Woods, given to the World Bank staff in Washington on 17 January 2002. Dr
Woods was formerly a parliamentarian as well as the chairperson of the Standing
Committee on Public Accounts. The occasion of the presentation was a seminar
organised by the Public Expenditure Thematic Group of the World Bank.
The content of the presentation addresses South African PFM reforms and
ultimately the preparation of the PFMA. Dr Woods was the chairperson of the
redrafting committee that comprised both parliamentarians and government
technocrats. The presentation has been extensively edited to provide for the
passage of time and changes since the promulgation of the PFMA.
2.1.1 Why Reform?
There are several benefits to be gained from modern management approaches

regarding public finance. Recognising that value for money lies at the base of

16
any such approach, the derived fiscal and macroeconomic effects must not be
understated. Yet all too often an appreciation of these potential benefits seems
absent from the thinking of finance ministers and senior finance officials. The
extent to which public financial management reforms are neglected bears
testimony to this fact.
In the public sector the daunting question continues: If improved financial

management systems can add significant improvements to the financial
performance of a successful business in a vibrant private sector industry, what
potential would there be for the financial performance of government operations
and their typically outdated administrations? The question that follows is then:
What would such improved performance (within the complete administration)
mean for a country’s macroeconomic management scenario in terms of the
following?
• Decreasing the budget deficit
• Reducing the national debt
• Improving liquidity through savings and the release of idle working capital
• Opportunities to lower tax rates
• Other opportunities for supply-side stimulation
• Greater macroeconomic stability and thereby an improved fixed investment
environment
• Improved conditions for currency stability
Simple arithmetic, based on a percentage of national expenditure, will prove

these possibilities – as can the experiences of a number of countries which have
undertaken the necessary reforms. History has shown that the common public
sector approach was one that addressed financial management through
conformance to an increasing number of rules and regulations. It became clear
that the gap between the “competition-driven private sector” and “the control-
driven public sector” had simply become too vast to justify, especially relating to
value for money and overall governance. This was the start of “the quiet
revolution”.
The quiet revolution is the “New Public Management” revolution – ways in which
successful private sector methodologies and experiences could be adapted to
benefit the public sector, and in particular how the necessary motivational effects
of the competitive market could be substantially captured through a
performance-driven system in which individual initiative seeks to attain
predetermined goals. What follows are the reforms that South Africa has
committed itself to to gain advantages found in the new financial management
thinking. There is a strong correlation between South Africa’s approach and that
of a number of other countries.

17
In 1998 a bill including a number of changes to public financial management was
tabled in Parliament. After some opposition to the bill it was withdrawn and a
redrafting committee was set up to produce a new Act through which PFM could
be executed. This committee took nine months to produce what today is known
as the Public Finance Management Act (PFMA), Act No. 1 of 1999.
2.1.2 Factors
The factors considered in establishing the PFMA are listed below.
Policy objectives
Financial management should not take place in a policy vacuum. It should take
its lead from government policy, as policy is the basis of the voters’ mandate.
Government must do more than expend money in the general direction of its
goals. There has to be an approach that defines policy objectives and then
pursues these objectives through functional planning and systematic
management stages.
Strategic planning
The modern annual strategic planning exercise is used to convert policy
intentions into a tangible plan (service delivery plan) upon which the budget and
management are established. The resolution was to determine how a particular
discipline (government department) should pursue its policy objectives through
defining its central purpose, its predetermined outcomes and outputs that are
expressed in its programmes and how they should be undertaken, the
performance levels that should be achieved and the resources required. Capital
expenditure projects are also identified. This planning covers a three-year term
and is revised annually – with a detailed emphasis on the initial year.
Medium-Term Expenditure Framework (MTEF)

The MTEF is a three-year budget that is informed by the strategic plan. The one-
year budgeting horizon resulted in many short-sighted planning decisions which
were costly and ineffective – not only in terms of erratic and inefficient service
delivery but also in terms of co-coordinating the objectives of operational and
capital spending. The three-year projection allows operational planners to
position the performance goals into a more expedient time frame. The
interdependencies of strategic planning and medium-term budgeting allow for a
more advantageous way of prioritisation and the allocation of resources.

18
The annual budget – its construction and development
The annual budget cycle produces the MTEF some four months before the new
fiscal year and the annual budget one month before the new calendar year. The
three-month gap is used for developing the detail and fine-tuning the budget for
the following year (Year 1 of the MTEF). Performance budgeting considerations
are extensively incorporated in the construct of the annual budget.
The costing basis

Costing is fundamental to the effectiveness of the performance budget. It defies
logic when it is understated. Costing systems which have particular relevance to
the public sector must be sought and applied. Activity-related direct and indirect
costs together with an absorption of apportioned overheads need to be factored
into the chosen costing system. The advantages of activity-based costing (ABC)
make it a strong contender, but a dynamic and flexible approach must be
adopted.
Inputs, outputs and performance indicators which represent both the

necessary financial and non-financial performance measures and which have
important uses for those who manage and those who exercise oversight, are of
value only if they emanate from an appropriate costing system.
The current budget – its introduction

The annual budget is presented to Parliament by the Minister of Finance in
February every year. It is released for implementation/execution to government
institutions on 1 April. It is produced in a format that meets the management
reporting requirements of the PFMA. Its construction also allows for the
devolution of responsibilities down to line managers who, through cost centres,
will have their budgets and performance goals to manage by. To ensure
accountability and transparency, the National Treasury issues a range of
documents which sets out the assumptions, trends and other factors upon which
the budget is established/ dependent – as well as performance criteria and
objectives for each operation. These publications include the following:
• A review of the whole budget
• Detailed estimates of national expenditure
• A policy statement upon which the budget is based
• Details of how the nationally collected revenues will be distributed
The current budget – its refinement

The quality and relevance of the categories of monies, which are processed
through the management accounting system, must also be emphasised. This is
achieved through the move from simple bookkeeping to sophisticated financial
and management accounting.

19
The budget, which lays the base for this, is not only structured in terms of
management’s reporting requirements, but also conforms to best-practice
financial reporting standards through the adoption of the International Monetary
Fund (IMF)/Global Distribution System (GDS) accounts classification. There was
also the establishment of the Accounting Standards Board (ASB) which provided
a range of Generally Recognised Accounting Practices (GRAP), the most
important of which was the conversion to an accrual-based system.
The accounting system

The accounting system is established to reflect the budget format so that actual
expenditure can be compared to what was budgeted. The PFMA’s demands in
this regard are fairly extensive and sophisticated. A feature of the financial
statements is the introduction of a full balance sheet that will take on valuable
meaning with the introduction of accrual-based accounting. This, in turn, will
allow for the nationally consolidated balance sheet that is of interest to the
international investor community.
The inclusion of the above management accounting facility in a sound

computerised system is required to avoid poor records which inevitably make for
poor information management, which in turn becomes a barrier to public sector
reform.
The subsystems
Two of the major accounting systems causing far-reaching expenditure and
feeding into the management accounting systems are the personnel system and
the procurement system. These had to be decentralised and fall under the
individual operations. A new procurement Act providing a framework of best
practices was enacted, namely the Preferential Procurement Policy Framework
Act. The stock and the fixed-asset inventory listings would be given values on an
item-by-item basis and would conform to accrual-based principles.
The PFMA also instructs all government institutions to introduce sound working
capital practices. Considering private sector principles, there is far-reaching
potential for improved working capital management. Apart from the positive
macroeconomic implications, there is also the possibility of minimising debt-
servicing costs.
Reporting
The PFMA is a world leader in the sphere of reporting requirements – both from
the corporate governance and the operational management point of view. The
reports portray the extent of the new accountability arrangements, from the

20
statistical facts to the performance achieved regarding the shortcomings in
performance. The Annual Report and the financial statements have special
significance with regard to public accountability and sound financial management
practices. The periodic reports provide for monitoring predetermined
performance targets and to what extent interventions are required.
Cross-referencing assurance
Cross-referencing tests the viability of the overall PFMA model. All aspects are
cross-referenced against the various role players and key issues. It examines
both the theoretical and practical qualities of the entire model. To make brief
reference to a few of these:
Accounting officers The important areas of the “administrative

accountability” and associated responsibilities.
CFOs The responsibility for the accuracy and integrity of
the accounting and budgeting systems and the
timeous production of information.
Line managers The new levels of responsibility that have been
delegated. In some cases, these would be full
programmes and in others particular activities. Line
managers must respond monthly on performance,
economy and efficiency. They are also subject to
disciplinary action under the PFMA in cases of
inappropriate expenditure (i.e. unauthorised,
irregular, fruitless/wasteful expenditure).
Auditor-General With the enhanced internal audit facility the
Auditor-General will increasingly move the point of
departure towards a balance-sheet-based audit.
Internal audit The internal audit (IA) function is a crucial resource
and will contribute to the success of the PFMA
regimen. IA must assess risks, ensure that the
necessary controls are established, check the
functionality of the systems and add value by
institutionalising performance assessments. The
internal audit section reports to an independent
Audit Committee and must prioritise the work
proposed by management.
Executive Members of cabinet have “political accountability”
which relieves them of the responsibility of the day-
to-day running of the operations. They exercise

21
oversight over the achievement of policy objectives
through quarterly and annual reports.
Treasury The National Treasury is no longer the “big
brother”, as the underlying philosophy of the PFMA
is to “let managers manage”. The Treasury’s
responsibilities are essentially to establish
standards and best practices.
Training As has been the experience of other countries
undertaking similar reforms, success more than
anything else depends on the availability of the
right human capacity. This calls for urgent
education initiatives that cover everything from
strategic planning, performance budgeting to
accrual accounting. It includes computer input
clerks, line managers and all other levels of
management.
Parliament Parliament’s oversight committees are well served
by the PFMA arrangements. This is particularly true
of the appropriateness of services delivered and the
value for money achieved in making available those
services. The committees scrutinise reports and
take up issues of concern with the Accounting
Officer and/or relevant Cabinet Minister when
necessary.
Crucial issues The issues can be cross-referenced in order to show
where and how these are fully accommodated
within the systems employed – in particular,
whether the systems restrict the opportunities for
ongoing instances of waste, inefficiency, fraud and
corruption.
Also important is the strengthening of corporate
governance arrangements through clearer roles for
all concerned and more useful and reliable
information flows.
Implementation The date-linked PFMA implementation was imposed
on all government operations.
2.1.3 Closing this Discussion
In many respects, the reform road taken by South Africa is no different from the
road taken in many other countries. The PFMA arrangements represent a radical

22
departure from an input-oriented, rules-based, compliance-dominated
environment in which administrators had little discretion or real authority to a
modern, best-practices, performance-based system in which managers are given
unambiguous authority to manage while at the same time they are also given
strong accountability obligations.
Three issues remain: firstly, implementation difficulties connected to the

reforms, secondly, bringing the reforms closer to those countries which languish
in the old world and, thirdly, the importance that the development of new reforms
remains ongoing.
Implementation: The first issue is human capacity. All countries undertaking

reforms have been unable to adequately achieve the skills levels necessary to
completely institute the required systems. Important attitudinal changes are also
necessary to make the new systems effective. This, together with aspects of
institutional capacity, is a particular problem for South Africa and is likely to
impede progress.
Developing the appropriate performance measures is another area where most

countries have struggled to find measures which fully satisfy their needs. The
primary areas are as follows:
• Accrual accounting has had mixed implementation results with some
countries experiencing particular difficulties, whereas others have had a
relatively smooth conversion passage.
• Costing generally seems to be an Achilles heel with methodological
weaknesses tending to undermine reliance on economy and efficiency
measurements and reports.
• Management information systems need careful design if they are to produce
all the necessary reports in an accurate and meaningful way.
Other countries: Several countries have yet to attempt this new generation of
financial management reform. Many of these countries would have difficulty
coping with the complexity of the South African, United Kingdom or New Zealand
arrangements.
Quo vadis: The financial management dimension of the New Public Management
movement must remain dynamic and purposefully developing. In achieving more
effective and more accountable governments, every effort must be made to bring
the best private-sector principles and practices into the public-sector arena.

23
2.2 Summary of the Public Finance Management Act, Act No. 1 Of
1999 (With Amendments)
The following section is being included for purposes of comprehensiveness only.

We accept that most of you, if you have worked diligently through the preceding
semesters’ prescribed material, will not have to consider this material. As you
work through this study guide, you will also notice that there is an increasingly
higher premium being placed on assessing the extent to which South Africa is
able to introduce, implement, execute and maintain First World systems in their
unadulterated format, and whether South Africa should heed the warnings and
evolve towards a new PFM dispensation. We will be returning to the PFMA several
times to determine whether or not South Africa had the capacity to deal with
international best practices from the outset. You are at liberty to exclude this
section, but you must realise that you will be returning to the PFMA from time to
time for the above comparisons and/or assessments.
Open Source Solutions Africa at https://ossafrica.com provides a broad-based

summary of the PFMA. The document available on the Internet and quoted below
provides several links which can be used for further investigation.
The Public Finance Management Act regulates the management of finances in

national and provincial governments. It sets out the procedures for efficient and
effective management of all revenue, expenditure, assets and liabilities. It
establishes the duties and responsibilities of government officials in charge of
finances. The Act aims to secure transparency, accountability and sound financial
management in government and public institutions.
The Act clarifies the laws in relation to the National and provincial treasuries, the
National and provincial revenue funds, and the national and provincial budgets.
It also governs the management of finances in departments, public entities (such
as ESKOM and TELKOM), Parliament and the provincial legislatures, and
constitutional institutions (such as the Human Rights Commission, the
Commission on Gender Equality and the Independent Broadcasting Authority).
2.2.1 Contents
• The National Treasury and Revenue Fund

• Provincial treasuries and revenue funds
• National and provincial budgets
• Accounting officers
• Public entities

24
• Loans, guarantees and other commitments
• Treasury Regulations
2.2.2 The National Treasury and Revenue Fund
The National Treasury, consisting of the Minister of Finance and the national
department(s) responsible for financial and fiscal matters, is the main body that
oversees the implementation of the Act. The National Treasury promotes the
national government’s fiscal policy framework and monitors provincial budgets,
government departments and other institutions to which the Act applies. The
National Treasury must prescribe norms and standards and has the right to
investigate any system of financial management in any department, public entity
or constitutional institution. The National Treasury submits annual financial
statements for the following bodies to the Auditor-General for auditing:
• National departments
• Public entities under the ownership control of the National Executive
• Constitutional institutions
• The South African Reserve Bank
• The Auditor-General
• Parliament
Once the statements have been audited, they are consolidated and submitted to
Parliament for tabling in both houses. This process must be made public and the
National Treasury may publish financial statistics about all spheres of
government in the Government Gazette.
The National Treasury is also in charge of the National Revenue Fund into which
money received by the national government must be paid. (This includes most
money paid to the government, although there are some exclusions.) No
unauthorised money may be withdrawn from the fund.
SARS must also deposit all taxes, levies, duties and fees into a Revenue Fund
and may only withdraw money to refund a person or organisation.
Only the National Treasury may withdraw money (and this must be authorised)
from the National Revenue Fund.
The Minister of Finance may, in exceptional circumstances, authorise the use of

money for emergency purposes, but these may not exceed two per cent of the
total amount appropriated in the national budget.

25
2.2.3 Provincial Treasuries and Revenue Funds
Provincial treasuries, consisting of the MEC for Finance and the provincial
departments responsible for finance in that province, work much like the National
Treasury, but at a provincial level. They are responsible for preparing and
controlling the provincial budgets and oversee the implementation of this Act in
their provinces. A provincial treasury must prepare and submit financial
statements for its departments, for public entities that fall under its control and
for the provincial legislature. The consolidated financial statements must be
made public.
The provincial treasury is also in charge of the provincial revenue fund for its
province and, as with the National Treasury, no unauthorised money may be
withdrawn from provincial revenue funds. All money paid to a provincial
government must be deposited into the revenue fund, apart from a few
exclusions.
The National Treasury has the right to withdraw any exclusion (as per PFMA
Section 23) paid into the Provincial Revenue Fund, as long as it first consults with
the provincial treasury concerned. Other than the National Treasury, only
provincial treasuries are allowed to withdraw money (and only if the withdrawal
is authorised).
As with the National Treasury, provincial treasuries are allowed to withdraw funds
for emergency situations (but these may not exceed two per cent of the total
amount appropriated in the annual provincial budget). Such withdrawals must
be reported to the Auditor-General and the provincial legislature and they must
be attributed to a vote.
2.2.4 National and Provincial Budgets
The Minister of Finance must table the annual budget and multi-year budget
projections for the financial year for the National Assembly, and the MEC for
Finance in each province must table the provincial annual budget as well as multi-
year budget projections for the provincial legislature. Budgets set out estimated
revenue and expenditure for the year or over a period of years.
There are limits on the amount of funds that may be withdrawn before a budget
has been passed.
Subject to conditions (e.g. unforeseeable financial events), the Minister of

Finance may adjust the budget from time to time, if and when necessary.

26
Similarly, the provincial MEC for Finance may adjust the provincial budget.
Reports on the state of the budget must be published in the Government Gazette
each month and, at least four times a year, the provincial treasury must submit
a statement of revenue and expenditure to the National Treasury.
The relevant treasury may withhold funds from a department if the funds are for
a service that is being taken over by another department and any new draft
legislation that gives a provincial department a new function must take account
of the costs of that function and include an estimated projection of costs in the
draft.
2.2.5 Accounting Officers
All departments and constitutional institutions must appoint an accounting officer

to ensure that money is managed effectively, efficiently and transparently. The
Accounting Officer ensures that resources are used economically and that assets
are looked after. He/she maintains an internal audit system and a system for
evaluating projects. In general, the Accounting Officer keeps the finances of the
department or institution in order. This does not mean that an accounting officer
may enter into financial ventures that have not been approved.
In terms of the Act, accounting officers must keep full and proper records of the
financial affairs of the department or institution and are required to prepare and
submit detailed financial statements to the Auditor-General and comprehensive
annual reports and statements to the relevant treasury.
2.2.6 Public Entities
All public entities listed in Schedule 2 and Schedule 3, which are subject to
change by the Minister, must appoint a person or body who will be held
accountable for the purposes of the PFMA.
The accounting authority (either a board or other controlling body or a CEO)

must protect the assets and records of the public entity and must do everything
possible to prevent damaging the financial interests of the state.
Accounting authorities who represent Schedule 2 public entities must submit an

annual budget and corporate plan to the Accounting Officer. These must show a
projection of expected revenue and expenditure and any activity plans for the
next three years.

27
Accounting officers who represent Schedule 3 public entities that are not
government business enterprises must submit a budget of estimated revenue
and expenditure to the executive authority.
Public entities must seek approval from the relevant treasury before doing any
of the following:
• Setting up a company or starting or ending an important business activity
• Participating in an important partnership, joint venture or trust or changing
the nature of an existing interest in a partnership or trust
• Acquiring or doing away with a significant shareholding in a company or a
significant asset
The accounting authority of a public entity must keep full and proper financial
records of the affairs of the entity and must submit statements for auditing to
either the Auditor-General or a registered external auditor. An annual report,
fairly representing the state of affairs of the entity, must also be submitted to
the executive authority.
Executive authorities who direct an accounting officer of a public entity to do

something that will have financial implications for a department must set out the
instruction in writing. It is the Accounting Officer’s responsibility to ensure that
unauthorised spending does not occur.
2.2.7 Loans, Guarantees and Other Commitments
The institutions to which this Act applies may not borrow money or enter into
any transaction that binds them financially, unless it is authorised by the Act or
some other law.
If it is permissible to enter into a binding transaction, financial interactions may

be conducted only through the following persons:
• For government: Only the Minister of Finance may act on behalf of the
National Revenue Fund and only the MEC for Finance in a province may act
on behalf of a provincial revenue fund.
• For Schedule 2 public entities: Only the accounting authority can borrow
money or conduct binding transactions.
• For a national government business enterprise listed in Schedule 3: Only the
accounting authority, and the action must be authorised in the national
Government Gazette by the Minister of Finance.

28
• For a provincial government business enterprise listed in Schedule 3: Only
the Minister of Finance or a cabinet minister who is the executive authority
of the entity (with the approval of the Minister).
• Any other public entities require the approval of the Minister of Finance or,
where relevant, the Cabinet Minister who is the executive authority for the
public entity.
Constitutional institutions and provincial public entities can borrow money only
with the permission of the Minister of Finance, and then only for bridging
purposes and up to a prescribed limit.
2.2.8 Treasury Regulations
The National Treasury issues regulations concerning financial management for

the institutions to whom this Act applies. These regulations cover issues such as
the recovery of losses and damages and gifts or donations by or to the state,
and any matter prescribed for departments in terms of this Act. These regulations
are published in the Government Gazette and are made available on the National
Treasury website.
2.2.9 Offences
The Minister of Finance must set up a system for dealing with financial
misconduct and criminal charges.
Criminal offences include the following:

• Wilful or gross negligence on the part of an accounting officer
• Wilful or gross negligence on the part of an accounting authority
• Unauthorised loans or entering into a binding financial contract without
permission on behalf of a department, public entity or constitutional
institution
If a person is found guilty, he/she will be liable to a fine or imprisonment for a

period of up to five years.
2.3 Comparative Studies
In the section that follows, you are required to consider a pre-reform approach
to a post-reform approach. The ideal would be to compare the Exchequer and
Audit Act, Act No. 66 of 1975 with the PFMA, but as the former is verbose and
extremely legalistic, proving the need for change, it serves our purpose only for

29
reference sake. You are encouraged to scan through the document available on
https://www.gov.za or googled as Exchequer and Audit Act. Interestingly, the
document cost only 20 cents in 1975. More importantly, consider the multitude
of regulatory applications in comparison to what is currently contained in the
PFMA.
You are directed to the Nigerian Fiscal Responsibility Act, Act No. 31 of 2007
available at https://www.internationalbudget.org/wp-content/uploads/Nigeria-
FiscalResponsibilityAct2007-English.pdf. It is also available through a Google
search of Fiscal Responsibility Act 2007 and then Fiscal Responsibility Act, 2007
– International Budget Partnership. Read through the Act, always keeping the
PFMA at the back of your mind. Highlight areas of similarity and note the areas
that are dissimilar.
Additional context
Nigeria Finance (Control and Management) Act of 1958

Available at http://lawnigeria.com/LawsoftheFederation/FINANCE-
%28CONTROL-AND-MANAGEMENT%29-ACT.html (A Google search may
provide a revised bill which must not be used for this purpose.)
Covers:
Part I: General supervision and control
Part II: The Consolidated Revenue Fund
Part III: Investments
Part IV: Legislative authorisation of expenditure
Part V: Other public funds of the Federation
Part VI: Miscellaneous
2.4 Conclusion
This topic has provided you with an insight into what necessitated the PFM
reforms in South Africa. The man who was intimately involved in the process,
namely Dr Gavin Woods, provided the course followed and finally the outcome.
Throughout the discussion of the process, you were expected to apply your
analytical faculties and form an opinion on what was feasible under the construct
then and what should have been dealt with in an iterative process. The primary
output at that stage was the PFMA and your memory was refreshed regarding
this groundbreaking piece of legislation. The topic concluded by providing an
awareness of specific PFM legislation outside of South Africa, namely Nigeria

30
which has a GDP similar to that of South Africa. Here you were required to note
similarities and differences.
2.1. Describe what necessitated PFM reforms in South Africa. (15 marks)
2.2. List the factors used to bring about the PFM reforms in South Africa and
explain each one individually. (25 marks)
2.3. Label the various role players and key issues in the PFMA and state how
each one is expressed. (25 marks)
2.4. Prepare a summary of the PFMA that can be used to inform non-financial
managers of the scope of the Act. Do not cut and paste the above summary.
You must prepare your own interpretation of what is contextually relevant.
(25 marks)
2.5. Match the sections below using Nigeria’s Fiscal Responsibility Act, Act No.
31 of 2007 and the PFMA, and discuss the differences.
• The Medium Term Expenditure Framework (25 marks)
• The annual budget (25 marks)
• Budget execution (15 marks)
• Revenue (20 marks)
2.6. Prepare a table (three columns) and populate it with (1) the factors used in
SA’s reform process; (2) the differences from Nigeria’s Fiscal Responsibility
Act, Act No. 31 of 2007; and (3) an opinion on the merits and demerits of
the differences. (25 marks)

31
Topic 3
Legal Frameworks Supporting Public Financial
Management
Prescribed Reading
You will recognise part of the material prescribed for this topic as part of the
curriculum for PFB100–300 and/or PFB101/105. The work previously covered
intended to provide a working knowledge of specifically the prescripts and their
application. This topic enables you to consider PFM beyond the borders of South
Africa and assess its relevance and applicability within the local context. In this
topic, you must go beyond knowing and be able to critically consider generally
accepted doctrines and other countries’ legislation and determine the extent of
their consequences and suitability for South Africa.
For this topic, you must have copies, preferably electronic versions, of the
following documents:
• Public Financial Management Act, Act No. 1 of 1999. Available from
http://www.treasury.gov.za/legislation/PFMA/act.pdf.
• Cangiano, M., Curristine, T. & Lazare, M. (eds) 2013. Public financial
Only chapter 2: Developing legal frameworks to promote fiscal
responsibility: Design matters.
• Ladan, Muhammed Tawfiq. Overview of financial laws in Nigeria. Available
from https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2411664.
• Croatia. Fiscal Responsibility Act. Contents and objectives of the Act. 2010.
Available from www.sabor.hr/fgs.axd?id=26988.
To understand the frameworks and the salient issues, study the documents as
directed. You will be guided to the specific areas which require additional
attention.

32
3.1 Introduction

• Define Fiscal Responsibility Laws (FRLs) and the categories intowhich they
are divided.
• Argue the advantages and disadvantages of FRLs.
• Discuss the different approaches to legal frameworks and how theypromote
fiscal responsibility.
• Have an overview of the construct of financial legislation in Nigeria.
• Differentiate between South Africa’s and Nigeria’s public
financialmanagement and comment on the impact that the differences
mayhave within the local context.
• Differentiate between the public financial management structures inSouth
Africa and elsewhere in the world.
• Consider the effectiveness of the PFMA in terms of internationalpractice.
Your studies thus far have allowed you to reflect on the scope of PFM and offered
some models, inclusive of objectives and principles, all within a specific context.
You have also considered how a home-grown assessment model could be used
to determine the effectiveness of the execution of PFM. This was followed by
looking back at what led to the creation of the PFMA and how PFM was, and still
is, being transformed in South Africa. This topic compels you to measure the
PFMA against similar external legislation, more specifically African legislation,
and determine, at a very basic level, its utility value within the local context. This
topic allows you to reflect on an internationally researched model as propagated
by the International Monetary Fund. As you work through this unit, do so with
the intent of testing your accumulated knowledge and experience. Your study
should invariably leave you asking the question: “How can I/we improve the
situation I/we currently find myself/ourselves in?” South Africa has never been
more in need of creative thinking to the end of guaranteeing a “better life for
all”. All this is achieved by effective, efficient and economic service delivery by
everybody, especially you.
3.2 Legislative Frameworks
3.2.1 Background
The primary section of this part of the study is sourced from chapter 2 of Public
financial management and its emerging architecture (2013) edited by M.
Cangiano, T. Curristine and M. Lazare.

33
“One of the most pervasive problems in public finance is the upward drift of
government expenditure, deficits, and debt over time (Rodrik, 1998; Mosley,
2005; Erauskin-Iurrita, 2008). The economic literature espouses various theories
to explain the upward drift of expenditures as a percentage of GDP in the course
of economic development. The cause of debt and deficit levels becoming
unsustainable is, however, more often attributed to political economy factors.
Among the most commonly discussed theories is the deficit bias hypothesis,
which contends that politicians increase public expenditures in excess of taxes
for their own political gain, including by providing benefits to favored interest
groups and increasing spending during election years.” (Cangiano et al.,
2013:117)
The authors (Holger van Eden, Pokar Khemani and Richard P. Emery Jr) of
chapter 2 of Public financial management and its emerging architecture add yet
another factor, namely that in times of recession government expenditure is
increased, while in the years of plenty the expenditure is not proportionately
balanced over the business period. They state that “the fear of suppressing an
emerging economic recovery, or the attempt to stimulate the economy out of
structural problems, often leads to the postponement of fiscal consolidation
efforts” (Cangiano et al., 2013:117). One would expect that the symmetry
applied should support the sustainable growth when in fact it does just the
opposite. The key issue is that fiscal policy measures should have an element of
permanence about them when it comes to structural consequences.
This topic will concentrate on fiscal responsibility legislation and consider the
design and application of Fiscal Responsibility Laws (FRLs). It will endeavour to
enable you to argue the soundness of existing FRLs and what amendments could
be considered to improve fiscal outcomes. FRLs and Public Financial Management
are two sides of the same coin and the development of the laws should
unquestionably enhance the management of public funds. The wisdom that must
be heeded is that “FRLs can become more effective as they build positive
reputational capital over time” (Cangiano et al., 2013:119)
When designing FRLs, developing countries are cautioned to increase the

intensity and related complexity slowly and ensure that the development satisfies
the characteristics of modesty and flexibility. The system should thus evolve
rather than be cataclysmic. A factor often lost sight of is the available public
financial management structural capacity. It is essential to ensure that the
alignment of public financial management forms the basis of the planning, with
simultaneous consideration that the parallel track of capacity is enjoying the
same attention.

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3.2.2 What are Fiscal Responsibility Laws (FRLs)?
FRLs may be regarded as legal frameworks that encapsulate in law generally

accepted policies and processes that seek to improve fiscal outcomes, discipline,
transparency and accountability. This is achieved by setting up systems that
ensure that governments commit to fiscal policy objectives and strategies. These
frameworks can be part of budget system laws, but such laws frequently have a
much wider scope encompassing the whole PFM process. Bringing this approach
into context in the South African situation, you are encouraged to consider the
fact that public financial management as such is recorded in the PFMA and
accompanied by a set of regulations. There are in fact no laws directing
budgetary systems. It is often stated: “It makes you think, does it not?” The
question remains: Which route is the best? May this topic test your ability to
judge the best route.
The discussion on why FRLs are unique can be found on pages 120 and 121 of
Public financial management and its emerging architecture. Find and study the
following sections in this book:
• Section 2.1: Fiscal Responsibility Laws as an institutional response
In this section the authors suggest several reasons why FRLs are used as
policy tools. Primarily these reasons are the following:
o Rules are too prescriptive and FRLs (as opposed to policy) tend to
compromise alternative options.
o FRLs introduce the issue of reputational investment and costs.
(Wikipedia defines reputation capital as the quantitative measure of
some entity’s reputational value in some context.)
o The effectiveness of FRLs is determined by the support of PFM systems.
The complexity of the PFM systems must be directly proportional to the
requirements determined in the FRLs.
The discussion continues by listing three types of FRLs.
o The first variation originated in New Zealand, is fairly informal and

focuses on fiscal responsibility principles.
o The second version focuses more exactly on procedures and rules,
specifically to ensure greater transparency within the fiscal process.
o The third variation is far more robust and includes “rules for the stance
of fiscal policy”.

35
• The rationale for adopting Fiscal Rules in Fiscal Responsibility Laws
“A significant weakness of fiscal principles and procedural rules is their lack

of specificity about the actual fiscal policy stance a country should adopt.
Numerical fiscal rules, however, provide a clear anchor for fiscal policy.
Ideally, they determine, given the present economic and fiscal situation of
the country, the levels at which fiscal aggregates should be set. Fiscal rules
– in the ideal situation – provide automatic and objective answers that would
otherwise require a great deal of economic analysis, judgment, and political
compromise. They thus decrease policy transaction costs and provide better
fiscal outcomes.
Since the late 1990s, many countries have adopted fiscal rules to guide their
fiscal policy processes. Although these rules have been successful in certain
circumstances, such as under relatively stable growth conditions, in
controlling local government expenditure and, in some cases, during exit
from fiscal crisis, they have been much less successful in dealing with large
economic shocks or fundamental transformations of economies. In practice,
designing fiscal rules that apply well to all economic circumstances has been
difficult. Nominal deficit rules are procyclical, but structural deficit rules may
not address long-term fiscal sustainability concerns (if the structural growth
rate of an economy is decreasing). Debt rules may be too lax when overall
public debt is low, but too restrictive when debt is high. Expenditure rules
may be overly restrictive when extraordinary fiscal stimulus is called for,
whereas fiscal consolidation processes are more likely to be guided by a
consolidation timeline than a fixed numerical rule.
For the above reasons, the jury is still out on whether fiscal rules should be
included in fiscal responsibility laws (FRLs) in all circumstances. Given the
need to address multiple fiscal policy objectives (sustainability, stability,
intergenerational equity) in a variety of economic circumstances, two
discernible trends have emerged. The first, as discussed above, is to make
fiscal rules more complex (e.g., in mineral-exporting economies structural
fiscal balance rules are designed to incorporate both the domestic economic
cycle and fluctuations of major mineral prices). This additional complexity
enables them to be relevant under differing economic circumstances.
Second, more countries are adopting two or more fiscal rules to define the
anchor for fiscal policy, the idea being that different rules will address
different policy objectives, and that at any one time only one rule will be the
primary constraint under particular economic circumstances.

36
A more practical solution to these issues is perhaps the development of well-
designed escape clauses in FRLs, allowing the fiscal rule framework to be
inoperative during exceptional economic circumstances. A second solution,
combining rules and discretion, would be for the FRL to define the fiscal rules
that must be adhered to but leave the numerical values to be determined by
government on a recurring basis.” (Cangiano et al., 2013:125)
• Section 2.2: Evidence and rationale for FRLs
Carefully consider the reason why countries implementing FRLs have

increased over time. A quick visit to the Internet will show several variations
of Fiscal Responsibility Acts. This topic will visit Croatia and Ireland shortly.
Pay attention to the rationale for using FRLs as discussed under the following
descriptions:
o Rules vs discretion: Once you have the facts of this rationale, consider
the argument in relation to the land expropriation without compensation
issue.
o Effectiveness of legal frameworks: Here your attention is drawn to PFMA
section 3(3) which states: “In the event of any inconsistency between
this Act and any other legislation, this Act prevails.”
o Power of reputation: Although it may be regarded as a somewhat
contentious issue, the example offered here is for a principled academic
discussion rather than a partisan party political debate, namely
President Cyril Ramaphosa’s appointment in 2019 of retired Judge
Robert Nugent to head a commission of inquiry to investigate tax
administration and governance at the South African Revenue Service
(SARS).
o Separated laws: Here you are directed to consider whether the Treasury
Regulations should be incorporated as part of the PFMA or stand apart
as a supplementary document. Consider, also, whether the Medium
Term Expenditure Framework (MTEF) should be included in the PFMA or
not.
• Section 2.3: Design choices
Remind yourself of the design elements for achieving intermediate fiscal

objectives by studying the table below.

37
Design Elements for Achieving Intermediate Fiscal Objectives
Intermediate Fiscal Examples of Requirements in Fiscal Responsibility
Objective Law
1. Improve fiscal • Publish accurate and timely mid-year and end-
transparency of-year fiscal outcomes.
• Develop and publish forecasts for the medium
term.
2. Improve political • Publish fiscal policy objectives and strategy.
accountability for • Require government to report to legislature on
fiscal and budgetary achievements.
outcomes • Require the state auditor to independently
report on fiscal policy achievements.
3. Define a medium- • Develop a fiscal strategy document presenting
term fiscal process macro and fiscal objectives for the medium
term and stating planned policy measures.
4. Ensure that the • Require that fiscal policy decision making
fiscal policy guides precede budgetary decision making.
budgetary policy • Present a formal medium-term fiscal framework
at the start of budget preparation, including
decision making on expenditure ceilings for the
budget.
• Constrain the amendment rights of parliament
within agreed-on fiscal policy parameters.
5. Ensure fiscal • Enact limits to key aggregates (debt and
discipline and deficit-to-GDP limits).
sustainability • Require in-year rules on the use of revenue and
expenditure windfalls and on the redress of
overspending and lower than expected
revenues.
6. Ensure macrofiscal • Ensure appropriate and symmetric policy
stability responses through the use of fiscal rules aimed
at stabilising macroeconomic shocks (more
complex rules, expenditure growth limits,
cyclical deficit targets, rules-based stabilisation
funds).
7. Address • Implement a rules-based framework that
intergenerational defines intergenerational equity and sets up a
equity concerns transfer rule from budget to sovereign wealth
fund.
(Cangiano et al., 2013:136)

38
• Section 2.4: PFM requirements for an effective FRL
“Depending on the scope and complexity of the fiscal responsibility law, a

public financial management system should be progressively capable of
meeting requirements in the following areas:
o Accurate, timely, and dependable fiscal monitoring and reporting
o Credible budget planning
o Effective and disciplined budget execution
o Reasonably reliable macroeconomic and fiscal forecasting
o Fiscal policy analysis and ability to set fiscal targets
o Independent review of fiscal policy outcomes (external audit,
parliament, or fiscal council)
o A credible medium-term fiscal framework and a monitorable fiscal
strategy describing the path of fiscal deficits and public debt resulting
from government’s revenue, expenditure, and financing policies
o Ability to cost new and existing policy measures over the medium term,
that is, definition of the baseline
o Setting and executing fiscal policy in line with tightly defined numerical
limits
o Well-structured cabinet decision making over the medium term
o As fiscal rules become more complex, sophisticated macroeconomic
modelling to determine the structural growth rate, deficit, and resource
revenues” (Cangiano et al., 2013:146)
• Conclusion
“FRLs can play a useful role in strengthening fiscal outcomes. Given the
almost universal pressures to increase government spending, FRLs should
be part of the institutional toolkit of any ministry of finance. However,
adoption of an FRL is not a priority in all circumstances – if fiscal policy is
under control and the political will is strong to keep it that way, this
institutional innovation may not be a priority. Most countries are, however,
not in that happy situation.
A legal framework that encompasses principles of transparent, accountable,

and sustainable fiscal policy, a type I FRL, would seem desirable in any
country. Whether that objective requires a separate law depends on the
prominence fiscal policy has achieved in the political debate. Type II FRLs,
focusing on fiscal process rules (concrete reporting guidelines, limitation of
budget amendment rights, MTFF development), could also be adopted in
most countries if tailored to the capacity of the local PFM system. For type
III FRLs, which include numerical fiscal rules, economic and fiscal

39
circumstances, the political appetite for fiscal discipline and the capacity of
the PFM system to operate the FRL are crucial factors. A common mistake is
that ministries of finance are often too ambitious and overestimate what a
type III FRL can achieve in a society that does not yet fully appreciate the
importance of sustainable fiscal policy.
An FRL can gradually discipline the political debate, especially once it has
built up reputational capital. The distance between the aspirations of the law
and political reality should not become too large, otherwise the law will be
breached. Sometimes compromise needs to be accepted, and FRLs may have
to start with modest ambitions, encompassing, for example, only
specification of principles of transparency, accountability, and sustainability.
In such cases, FRLs are clearly not the whole answer to improving fiscal
policy outcomes.
FRLs should not, however, be seen as static legislation. As economic

circumstances change and as political acceptance grows, FRLs should adapt.
As the reputational capital of these laws increases, the possibility of imposing
tighter requirements arises, and the introduction of more sophisticated fiscal
rules should be explored. Both emerging market economies and advanced
economies have squandered opportunities to regularly strengthen their
FRLs. A number of emerging market economies are now in a position to
introduce FRLs with binding numerical rules without too much economic pain.
Advanced economies have neglected to make their FRLs more sophisticated
by, for example, introducing structural deficit limits.
Development of FRLs should be seen as a gradual process in which the

requirements of the fiscal policy process gradually expand from following
good practice principles, to transparency and process rules, and ultimately
to numerical fiscal rules. During this process of becoming more sophisticated
and prescriptive, it is important to define precisely a number of issues such
as coverage, escape clauses, sanctions, and transition requirements. These
elements can function as pressure valves that can serve countries well in
times of extreme fiscal crisis. Again, the most strenuous FRL requirements
will not always be the best and the longest lasting.” (Cangiano et al.,
2013:147)
3.3 South African Legal Framework for PFM
The statutory framework for PFM in South Africa was extensively covered in
previous courses and will not be repeated here.

40
3.4 International Perspectives
3.4.1 Overview of Financial Laws in Nigeria
In the previous section you were asked to consider the PFMA and to what extent
it satisfies the local context. In this section we consider another country’s
perspective and practice to discover to what extent South Africa is achieving the
optimum position regarding the financial legislative process. As Africans we think
it is appropriate that we compare ourselves with an African country which shares
a similar GDP. The following step will be to consider an academic’s opinion and
then have an opportunity to critically evaluate other pieces of financial legislation
and offer an opinion on what the best permutation would be for a developing
country.
Prof. Muhammed Tawfiq Ladan from Nigeria, in a paper entitled “Overview of

financial laws in Nigeria” writes: “Financial law is a branch of a national legal
system that regulates the financial activities of the state and its financial
relationship with the private sector. The state has at its disposal a large share of
the national income, more than half of which is handled by the state budget. By
means of the budget and other institutions of the financial system, the state
ensures the planned accumulation, distribution and use of monetary assets and
the systematic supervision of finances.” He goes on to suggest that the principal
aims of financial laws are usually as follows:
• “Control of public expenditure: to ensure prudent management of financial
resources by government.
• Market confidence: to maintain confidence in the financial system.
• Financial stability: contributing to the protection and enhancement of
stability of the financial system.
• Corporate governance: improvement in corporate governance.
• Consumer protection: securing the appropriate degree of protection for
consumers of the services and products of the financial institutions.
• Prevention and control of financial crime: reducing the extent to which it is
possible for a regulated business to be used for a purpose connected with
financial crimes like insider trading, money laundering, financing of
terrorism, credit card fraud, etc.” (Cangiano et al., 2013:147–148)

41
Additional context
Prof. Muhammed Tawfiq Ladan’s paper makes for interesting reading.
Consider the following issues as additional context.

• Section 2.0, page 5: Nature and scope of financial laws in Nigeria
• Section 2.1, page 6: Financial provisions of the Constitution
• Section 2.2, page 9: Allocation of Revenue (Federation Account, etc.) Act
• Section 2.3, page 11: Control and Management Act Cap. F.26, LFN 2004
• Section 2.4, page 14: Fiscal Responsibility Act, 2007
3.4.2 Fiscal Responsibility Act, Act No. 31 Of 2007 (Nigeria)
Nigeria’s Fiscal Responsibility Act, Act No. 31 of 2007 was introduced in topic 2
and is included here for assessment purposes. By its own wording it is an “Act
that provides for
• prudent management of the nation’s resources;
• ensures long-term macroeconomic stability of the national economy;
• secure greater accountability and transparency in fiscal operations within the
medium-term fiscal policy framework;
• the establishment of the Fiscal Responsibility Commission to ensure the
promotion;
• enforcement of the nation’s economic objectives; and
related matters.”
Read it carefully and compare it with the PFMA and the aforementioned
principles.
3.4.3 Fiscal Responsibility Act (Croatia)
The Fiscal Responsibility Act available at www.sabor.hr/fgs.axd?id=26988 states

that “it shall be published in the Official Gazette Narodne novine, and shall enter
into force on 1 January 2011”. It appears to have been introduced by the Speaker
of the Croatian Parliament, Luka Bebić, MP in Zagred on 23 November 2010. The
validity of the document is unqualified, as is the fact of its promulgation. It is
used here primarily for interrogation and comparison purposes.
Read it carefully and compare it with the PFMA and the aforementioned
principles.

42
Additional context
New Zealand's Fiscal Responsibility Act

http://press-files.anu.edu.au/downloads/press/p43481/pdf/article0121.pdf
“The Fiscal Responsibility Act passed by the New Zealand parliament in June
1994 makes the government and the Treasury responsible for reporting to
parliament specified information about fiscal strategy, the current economic and
fiscal situation and the outlook over the medium and long terms. It specifies
principles of fiscal policy that the government is to consider, but not necessarily
to implement, when developing its budgets. The Act’s supporters aim to tilt the
balance of fiscal decision-making away from the short-term economic and
political considerations that have been influential in the past and towards
strategic and long-term fiscal objectives.”
SCOPE OF THE ACT

• Outline of the Act
• Development and passage of the Act
• New Zealand’s fiscal record
• Policy design, implementation and coordination
• The current fiscal situation
• Will the Act address past or prospective institutional weaknesses?
• Long-term projections
• Improved information
• The Fiscal Responsibility Act vs. the Reserve Bank of New Zealand Act
• The prospects for coalition governments
• Conclusion
For further information access the file above.
Ireland’s Fiscal Responsibility Act 2012

Available at http://www.irishstatutebook.ie/eli/2012/act/39/enacted/en/pdf.
SCOPE OF THE ACT

Part 1: Interpretation
Section 1 Interpretation
Part 2: The Fiscal Rules
Section 2 Duty of government to endeavour to comply with fiscal rules
Section 3 Budgetary rule
Section 4 Debt rule
Section 5 Medium-term budgetary objective

43
Section 6 Correction mechanism
Part 3: Irish Fiscal Advisory Council
Section 7 Irish Fiscal Advisory Council
Section 8 Functions of Fiscal Council
Part 4: Miscellaneous and Supplementary
Section 9 Regulations
Section 10 Expenses
Section 11 Short title and commencement
For further information access the file above.
3.5 Conclusion
In this topic you were given an insight into Fiscal Responsibility Laws and how
they contribute to public financial management. This insight encompasses the
fact that rules detract from the use of discretion as they are cold and clinical,
and limit government’s flexibility in dealing with crucial adjustments when they
are badly constructed, but provide an increase in credibility and strengthen it as
their successful implementation and utility continue. The success of a legal
framework is heavily dependent on the level of financial acumen of the
operators/officials and the structures supporting public financial management.
This topic revealed three types of FRLs, namely those that focus on the principles
of transparency, accountability and sustainability, but fail to indicate how these
principles are achieved; those that focus on the procedural rules that enhance
fiscal transparency and the actual process; and those that include rules for the
positioning of fiscal policy or place limitations on key fiscal policy summaries.
Then there was an assessment of the rationale for FRLs. To quote the authors of
the source material: “First, rules trump discretion in fiscal policymaking. Second,
the legal system can exert a powerful controlling influence on the actions of
politicians, especially if higher-ranking legislation, such as ‘organic laws’ and the
constitution, is used. Third, the reputational capital of FRLs can build over time
if they are appropriately designed and developed gradually.” (Cangiano et al.,
2013:127)
This study is dynamic in that it aims to compare the past, current and future
developments of the legislature, inclusive of supporting frameworks. It does this
to offer you an opportunity to think laterally and contribute to the improvement
of public sector financial management. The first part of this topic acts as basis
from which to think, while the second part provides the local case and suggests
comparisons with the approach of another African country. As a developing
country we should always remember the local context and not lose sight of the

44
warnings issued by those who have gone before or are applying their intellectual
capital to pave the way.
The second part of this study covers the actual legislation at our disposal. It
commences with the PFMA and then moves to describing Nigeria’s financial laws
and eventually Nigeria’s Fiscal Responsibility Act, Act No. 31 of 2007.
The PFMA gives effect to sections 213, 215, 216, 217, 218 and 219 of the
Constitution for the national and provincial spheres of government. The Act
adopts an approach to financial management that focuses on outputs and
responsibilities, and aims to improve financial management in the public sector.
The Act is reliant on dedicated and knowledgeable officials to enhance the level
of financial management.
The Nigerian 1999 Constitution as amended provides for the powers and control
over public funds at the federal level under sections 80–89 and includes, among
others things, powers and control over public funds; the establishment of the
Consolidated Revenue Fund; authorisation of expenditure from the Consolidated
Revenue Fund; authorisation of expenditure in default appropriations; and the
Contingencies Fund.
With the accumulation of the above information/knowledge you should be able

to assess, from an academic perspective, the utility value of the public sector
financial framework within South Africa; equate it to the reality of everyday
application; and determine whether the structures within the framework are
adequately resourced to satisfy the standards imposed upon them.
3.1. Explain why FRLs are used as policy tools. (10 marks)
3.2. List three types of FRLs and explain each one individually. (10 marks)
3.3. Explain what an FRL is and what makes it unique. Continue the discussion
by explaining the categorisation of FLRs. (20 marks)
3.4. Use your understanding of FRLs to argue whether the PFMA is an FRL or
not. (25 marks)
There are different ways of approaching the discussion. One, for example,
is by identifying the characteristics and then using them to assess the PFMA
and its general approach. Your response can be formatted as a table or a
free-flow discussion.

45
3.5. Restate the evidence and rationale for FRLs. (20 marks)
3.6. Describe the design elements for achieving intermediate fiscal objectives.
(20 marks)
3.7. List the key public financial management requirements that support a fiscal
responsibility law and next to each one quote the PFMA section covering
that particular element.
3.8. Prof. Muhammed Tawfiq Ladan offers six principal aims of financial laws.
List these aims and discuss their relevance in terms of the PFMA. (10 marks)

46
Topic 4
Public Sector Accounting and Reporting
Prescribed Reading
additional reading within this topic.
4.1 Introduction

• Define the concept “accounting” and explain the purpose of accounting.
• Differentiate between accounting and accountability and indicate how they
complement each other.
• Describe the different types of accounting.
• Explain the purpose of the accounting policy in government.
• Describe the various bases for accounting in the public sector.
• Analyse the accounting cycle in the public sector.
• Describe the accounting systems used in government.
• Describe the banking and cash management arrangements in the public
sector.
• Explain the use of revenue funds in the public sector in South Africa.
• Describe the manner in which payments should be made in the public sector.
• Explain the essential elements in administering debtors.
• Contextualise the non-payment of municipal debts and enable a process
whereby the payments can be improved.
• Explain how public institutions should retain financial information.
The purpose of this topic is to provide you with an understanding public sector
accounting. It will focus on accounting as a financial management tool largely
providing the data element for accountability. It will enable you to account for
revenue collected and expenditure incurred specifically as they pertain to the
provisioning of goods and services to the public. The intent is not to create public
sector accountants or management accountants, but to provide an
understanding of the accounting process and why, from a PFM perspective, it is
important.

47
It should be noted that the topic follows a logical process to explain the concept
of accounting from its most basic aspects to the more complicated and strategic
issues such as the policy and the systems supporting accounting and
accountability.
4.2 Accounting Explained
4.2.1 Defining Accounting
Melville (1997:1) defines accounting as:

• Collecting and recording economic data relating to an entity (such as a public
institution)
• Processing this data to produce useful economic information (referred to as
accounting information)
• Communicating or reporting this accounting information to interested parties
and interpreting it
Based on Melville’s definition of accounting it can be concluded that accounting

has four main functions, namely:
• Obtaining (documenting) financial information
• Recording financial information
• Processing (sorting) the information
• Reporting the results of the financial transactions
4.2.2 Purpose Of Accounting
The purpose of accounting is to assist users of the accounting information to

make better financial management decisions (Melville, 1997:2). According to
Faul et al. (1994:22, 23, 36), the primary purpose of accounting is to measure
and communicate two aspects of a public institution’s financial activities, namely
its financial results and financial position.
The financial results of a public institution are determined by the difference

between the income generated and the expenditure incurred during a specific
period, which in the case of public institutions is the surplus (profit in private
sector terms) or deficit (loss in private sector terms) at the end of the financial
year. The financial result of an entity is reflected in the income statement. The
financial position of an entity is determined at a specific stage by establishing
the difference between the assets and the liabilities, which represents the net
worth of the entity, which is reflected in the balance sheet.

48
In terms of the accounting function of an entity, an accounting policy is necessary
in the accounting process to handle specific situations consistently. This
accounting policy consists of and is based on decisions about how the entity is
going to deal with certain situations in the accounting process where alternative
treatments are possible in terms of generally accepted accounting practices.
4.2.3 Accounting and Accountability
Financial information serves as a point of departure for accountability (Faul et

al., 1994:4). It is, however, necessary to understand the origin of the word
“accountability”. To start with, it stems from the word “account” or “to account
for” which refers to the following:
• To give a recital, narration or description of
• To answer for or to give a formal explanation or justification of one’s own
conduct, usually to someone in authority
• To give or serve as or to provide an explanation or reason for
• To give a reckoning of or to answer for (money etc. entrusted)
• To render an account for (expenditure, payments made) (Visser & Erasmus,
2002:220)
Although the above description of the word “account” or “to account for” in
general means that somebody has to answer for their conduct to someone in
authority, it is often understood in relation to financial matters. At the same time
it must be borne in mind that the word “accounting” is also derived from the
word “account” and, as previously described, refers to the process of or skill in
keeping and verifying or checking accounts. This process of or skill in keeping
and verifying or checking accounts eventually forms the basis of providing a
formal explanation or justification of one’s own conduct, which is the ability to
account for one’s actions, conduct and decisions. According to Faul et al.
(1994:4–5), the manner in which accounting reflects financial information stems
from the responsibility of the person who has been entrusted with funds for a
specific purpose to account to the provider(s) of those funds for the manner in
which the funds have been applied. Such a responsibility is known as
accountability and in this regard it refers to the manner in which the providers
of funds exercise control over the application of funds by the people to whom
they have entrusted those funds. Taxpayers who pay taxes to the government
therefore expect the authorities to account for the way in which their money was
applied and/or utilised. The concept of accountability in this case refers to the
responsibility and ability to report past financial events.

49
4.3 Types of Accounting
According to Melville (1997:4), the needs of managers, which are different from
those of the other users of accounting information, have led to two branches or
types of accounting, namely financial accounting and management accounting.
These two types of accounting will be discussed, as well as others, such as cost
accounting, responsibility accounting and creative accounting which, in some
cases, form part of the first two types of accounting but need to be explained
separately.
4.3.1 Financial Accounting
The focus of financial accounting is on the recording of financial transactions

(McKinney, 1995:23). These transactions are systematically recorded in
accounting journals and ledgers and periodically used to produce the required
financial statements (also called fiscal statements in public sector terms). Among
other things, the information in the financial statements is used for assessing
performance, budget preparation and execution, internal control and compliance
with the statutory and other policy prescripts.
Financial accounting provides external users with financial information about the
entity (Faul et al., 1994:11). This information is conveyed to the users through
the annual financial statements. According to Melville (1997:5), the two most
important financial statements, in terms of financial accounting, are the income
statement and the balance sheet. The main characteristics of financial accounting
information are the following:
• The information is provided in a summarised form annually and does not
include the detail expected of management information.
• A minimum amount of financial accounting information must be produced in
terms of certain legal obligations.
• It is mainly historical in nature, since it is a review of the financial results of
an entity for the past accounting period and a statement of the current
financial position.
4.3.2 Management Accounting
Management accountants, on the other hand, occupy themselves with preparing

information used for and by managers to direct the processes and direction of
the entity. According to Melville (1997:5), it is concerned with the provision of
accounting information to support the planning and control decisions made by
managers. Except for the development of information that can assist managers

50
in making decisions, management accountants are also responsible for operating
the entity’s accounting system, which includes the recording of transactions and
the preparation of financial statements, tax returns and other accounting reports.
Management accounting therefore focuses on the internal users of the financial
information of an entity, namely the managers and supervisors. It uses financial,
historical and estimated (projected) data and focuses on the organisation’s
overall position to assist and augment decision making in respect of day-to-day
activities, programmes, responsibility centres and the general planning of
business.
Melville (1997:5) states that the financial information that management

accounting can generate and provide to management is, among other things, the
following:
• Reports on the costs of delivering a service
• Reports on the costs of running a particular department
• Monthly analysis of expenditure by comparing actual and planned
expenditure in terms of the budget allocations
• A forecast of income and expenditure for each month of the year,
emphasising the months in which the entity may run into financial difficulties
A few areas of specialisation have developed in management accounting since

the responsibilities of management accountants are so broad. According to Meigs
et al. (1998:32–33), the more important areas of specialisation in management
accounting are cost accounting and financial forecasting or budgeting. At the
same time Faul et al. (1994:11) also include cash-flow control as an important
area of management accounting. According to Vigario (1998:3 cited in Visser &
Erasmus, 2002), cost accounting refers to the collection of cost information for
external financial accounting purposes, while management accounting refers to
the collection of cost information for internal decision-making purposes.
Management accounting does have certain characteristics that distinguish it from

other types of accounting (Melville, 1997:5; McKinney, 1995:24). The main and
distinguishing characteristics can be described as follows:
• Much more detailed financial information is required more frequently than
that used by other user groups.
• There is no legal obligation to produce any management accounting
information. The information actually produced will differ widely from one
entity to another.
• It is driven by the decision maker’s requests and needs since management
specifies the type of financial information that is required of the management
accounting function.

51
• The information is mainly future orientated because it often includes
forecasts and projections that managers need to plan for the future of the
institution.
• It uses an understanding of the past to plan, shape and redirect the future
of the entity.
• The information is mostly intended for internal use, management decision
making and internal reporting, and not for external publication, since it is
often confidential.
• It is not bound by generally accepted accounting principles (GAAP), but uses
an eclectic approach (selecting from various sources) by emphasising the
relevance and flexibility of data selection which includes data from other
disciplines.
• It uses non-monetary data to provide information that is very useful in
preparing short-, medium- and long-term budgets.
• It analyses deviations from planned performance by using variance reports.
• It encourages a cost consciousness that is related to the responsibility
centres.
• Its cost approach promotes a linkage between management control and
programming, together with a linkage with and between performance and
zero-based budgeting.
• It serves as a motivating mechanism since officials are not only held
accountable for the attainment of the planned results but are also rewarded
for achievements.
• Management accounting reports are audited only, if at all, by internal
auditors.
4.3.3 Cost Accounting
Although cost accounting is seen as part of the management accounting function,

it will be viewed separately to enhance an understanding of its nature. It is
necessary to realise that the assemblage and recording of all the costs related to
a project or a unit of work are the responsibility of cost accounting (McKinney,
1995:24). Cost accounting can, therefore, also be defined as the art of
determining the cost of a product, service or activity (Herbert et al., 1984:5 cited
in Visser & Erasmus, 2002). It provides a valuable link between financial
accounting and management accounting since financial accounting provides
historical data on which management decisions can be based.
The cost information provided by cost accounting or costing (in short) is vital to
enhance planning (financial and otherwise), budgeting, controlling, evaluating
and reporting (McKinney, 1995:26). Cost information can be used in public

52
institutions where there is a number of important applications for it, including
the following:
Budgeting Reporting
The budgeting process provides the Greater cost consciousness is created
basic costing data to prepare the by the figures presented in financial
actual budget, which includes planning statements.
and decision making about resource
allocation.
Cost-efficiency analysis Opportunity costs
This analysis provides information to Opportunity costs can be used when
evaluate the efficiency of programmes choices must be made among
and activities. alternative courses of action, since
they indicate the maximum value of
benefits derived when selecting one
option over another. When a public
institution wants to outsource a certain
service instead of providing it directly,
opportunity costs must be considered.
Life-cycle costing Differential costs
Life-cycle costing determines the total These costs present the amount of
cost associated with a long-term asset, increase or decrease in revenue or
which includes the acquisition, expenses that is expected to result
operation and maintenance costs over from a particular course of action as
the lifetime of the equipment less any compared to an alternative.
resale value.
Avoidable costs Full costs
These costs represent the amount of These costs provide another way of
expense that would not occur if a presenting total costs.
decision were implemented.
Contracting-out decision Process costing system
This concept refers to a process that Such a system produces the average
provides a basis to determine whether cost per unit by including all the
an activity should be executed by the relevant costs of a process and dividing
public institution or contracted out. this total by the units of output
produced.
Fee determination
This is a process to facilitate the
development of a fee schedule and to
reimburse costs.

53
4.3.4 Creative Accounting
ResearchGate (2016) in a paper on creative accounting offers the following

definition: “Creative accounting, also known as Hollywood accounting, income
smoothing or cosmetic accounting, is a legitimate accounting application
whereby the accountants and auditors take advantage of the loopholes in the
accounting policies as per International Accounting Standards (IAS) and
Generally Accepted Accounting Principles (GAAP). It is not a fraudulent practice,
as the concerned parties involved here only take the advantage of the accounting
policy loopholes to better represent financial statements. Creative accounting
may be used to increase or reduce income in order to show higher or lower profit,
to turn expenses into assets so as to increase profitability or to manoeuvre the
net worth of the business.”
The authors of this guide are more inclined to the description provided by
Wikipedia: “Creative accounting is an euphemism referring to accounting
practices that may follow the letter of the rules of standard accounting practices,
but deviate from the spirit of those rules. They are characterized by excessive
complication and the use of novel ways of characterizing income, assets, or
liabilities and the intent to influence readers towards the interpretations desired
by the authors. The terms ‘innovative’ or ‘aggressive’ are also sometimes used.
Other synonyms include ‘cooking the books’ and ‘enronomics’.
The term as generally understood refers to systematic misrepresentation of the

true income and assets of corporations or other organizations. ‘Creative
accounting’ has been at the root of a number of accounting scandals and many
proposals for accounting reform – usually based on an updated analysis of capital
and factors of production that would correctly reflect how value is added.”
South Africa has seen several such examples and the consequent demise of those
institutions as a result, for example Steinhoff and KPMG.
Additional context
In June 2018, EWN published the headline:

STEINHOFF TAKES $12BN WRITE-DOWN AFTER ACCOUNTING SCANDAL
JOHANNESBURG – South African retailer Steinhoff said it has booked $12 billion
in charges related to accounting irregularities discovered last year, as it reported
a widened half-year loss.

54
The write-down is the latest setback for the multinational retailer, which has been
fighting to stay afloat since it revealed holes in its accounts last December that
wiped $15 billion off its market value.
The company, which grew rapidly from a small local furniture outfit to a
multinational retailer, said €10.2 billion ($11.91 billion) of charges related mostly
to overstated profits, asset values and transactions having to be reversed. The
figure is 70% more than the 6 billion euros initially estimated.
The write-downs widened the company’s operating loss to 152 million euros in
the six months through March this year compared with a €44 million a year
earlier.
Available from https://ewn.co.za/2018/06/30/steinhoff-takes-usd12bn-write-

down-after-accounting-scandal.
The Daily Maverick reported as follows:
KPMG banned from auditing South Africa’s state bodies
South Africa on Tuesday announced it has banned KPMG from auditing its
government institutions following a series of scandals involving the international
auditor in the country.
The decision to terminate KPMG’s contracts is with “immediate effect”, Auditor-

General Kimi Makwetu’s office said in a statement.
The cancellation was in “recognition of the significant reputational risks

associated” with matters affecting the firm in the country, it said.
KPMG came under fire after a local bank that the firm had given a clear audit in
2017 collapsed last month.
Available from https://www.dailymaverick.co.za/article/2018-04-17-kpmg-

banned-from-auditing-south-africas-state-bodies/.
4.4 Accounting Policy
To deal with recurring situations consistently a policy is needed in the accounting

process as a guideline to achieve more or less the same outcomes (Faul et al.,
1994:17). This accounting policy consists of and is based on decisions about how

55
the entity is going to deal with certain situations in the accounting process where
alternative treatments are possible in terms of accounting standards issued for
the public sector by the Accounting Standards Board in terms of generally
recognised accounting practices that should be applied in government.
If each entity applies its own rules and interprets the theory of accounting
according to its own understanding of it, chaos will be created in the financial
reporting process and the financial reports will not make any sense to their users
(Faul et al., 1994:14). That is why the accounting profession in South Africa has
developed an underlying basis for the measurement and disclosure of the results
of business transactions and events for the private sector over years. This
underlying basis for the measurement and disclosure of financial transactions is
known as generally accepted accounting practice (GAAP). GAAP consists of a set
of standards according to which accounting is practised. These standards are set
according to their desirability and the fact that they are generally applicable. It
is, however, important to keep in mind that GAAP does not ensure that all the
entities in the private sector measure and report their financial activities
similarly, since they differ in various respects. A rigid application of GAAP will
therefore not be practical. GAAP should rather be seen as a general framework
that provides the rules for measuring and reporting while a certain degree of
deviation is still allowed.
GAAP, however, has never applied to the public sector in South Africa since the
national and provincial government departments’ basis of accounting was cash-
based accounting. The Constitution of the Republic of South Africa, 1996,
however, has required a definite change in this regard. In terms of section 216(1)
of the Constitution “national legislation must prescribe measures to ensure both
transparency and expenditure control in each sphere of government by
introducing – (a) generally recognised accounting practice (GRAP)”.
GRAP is based on the generally accepted accounting practice (GAAP) that is

applied in the private sector. The standards that form part of GAAP have been
adapted according to circumstances in the public sector to give rise to GRAP.
GRAP can, therefore, also be seen as the underlying basis for the measurement
and disclosure of financial transactions in the public sector. At the same time it
is important to bear in mind that the same principles that apply to GAAP also
apply to GRAP.
GRAP 109 issued by the Accounting Standards Board (ASB) in July 2015 requires
the Board to determine GRAP, in terms of the PFMA, for all three tiers of
government; inclusive of constitutional, trading and public entities, Parliament
and provincial legislatures. The shared term to be used in the standards of GRAP

56
for these public bodies are “entities”. GRAP 109 may be accessed via a Google
search using GRAP 109 or via the National Treasury website, using GRAP 109 as
the subject.
Although the document is rather extensive and detailed, you are encouraged to
scan through it to familiarise yourself with its scope and content. You may even
find it interesting in parts, identifying material which will stand you in good stead
as you scale the corporate ladder.
4.5 Bases of Accounting
4.5.1 Cash Basis of Accounting
Cash accounting refers to the accounting system which recognises only cash
inflows (receipts) and cash outflows (payments) (Jones & Pendlebury,
1992:142). In other words, revenues and transfer payments received are not
recorded in accounts until the cash is received, and expenditure and transfer
payments to other public entities are recorded only when the payment was made
and the cash disbursed (Coe, 1989:18 cited in Visser & Erasmus, 2002).
According to Jones and Pendlebury (1992:142), the final accounts produced by
the cash accounting system is nothing more than summarised cash books.
The result of this accounting system is the following:

• A balance sheet cannot be compiled since there are no assets or liabilities in
the ledger.
• There are no debtors since sales/services rendered are only recognised once
cash is received.
• There are no creditors since purchases are only recognised once cash is paid.
• Stock adjustments do not take place since the usage of stock is not recorded
in accounts, resulting in no closing stock figures.
• There are no fixed assets recorded.
South African government departments at central and provincial government

levels used this system for many years. These government departments are now
moving to an accrual accounting system in terms of the requirement of the
Constitution that GRAP has to be applied. The conversion from cash accounting
to accrual accounting could result in unforeseen budget deficits, since the funds
available for appropriation could be reduced by outstanding obligations (Coe,
1989:19 cited in Visser & Erasmus, 2002). If these outstanding obligations are
very sizable, it could mean that there are less funds available to deliver the
planned services. At the same time it is important to bear in mind that GAAP

57
(and by the same token also GRAP) does not recommend the cash accounting
system since it provides a misleading picture to the users of the financial
statements which in this case are only the income statement and the cash-flow
statement (Coe, 1989:18 cited in Visser & Erasmus, 2002).
McKinney (1995:34) points out that the advantages of the cash accounting
system are its simplicity and the low cost to maintain it. At the same time Jones
and Pendlebury (1992:143) also refer to the low cost in terms of accounting
expertise that is necessary to maintain the accounting system. Another
advantage of the cash accounting system is the objectivity of the system since
it does not include subjective adjustments that must be made when producing
financial statements.
4.5.2 Modified Cash Standard
In December 2015, the National Treasury promulgated a document entitled

“Generally recognised accounting practice for national and provincial
departments – modified cash standard”. It explains the structure of the modified
cash standard as follows:
“Under the modified cash basis of accounting, only certain elements are
recognised in the Statement of Financial Position and Statement of Financial
Performance, while others are recorded for presentation as notes. Elements are
primarily recognised when they arise from cash inflows or outflows. This differs
from accrual accounting which requires the recognition of the effects of
transactions and other events when they occur, rather than when cash or its
equivalent is received or paid.
To ensure a complete view of the financial position and performance of a

department for the purposes of fair presentation, and without changing the basis
of accounting, this Standard also prescribes disclosure requirements for accrual-
basis financial information despite these items not qualifying for recognition. The
Standard distinguishes between primary (recognised, presented and disclosed)
and secondary (recorded and disclosed) financial information, but does not place
a greater degree of importance on either type of information.
Primary and secondary information are of equal importance and are therefore
considered to be equally necessary for fair presentation. As such, secondary
information is considered an integral part of the financial statements.
Primary financial information relates to the presentation and disclosure of

recognised assets, liabilities, revenue and expenditure in the financial statements

58
and their supporting notes. Secondary financial information relates to the
disclosure of additional information about assets and liabilities that are also
required to be recorded, but are at present not recognised in the financial
statements due to the application of the modified cash basis of accounting.
Secondary information therefore generally provides information about elements
that would have qualified for recognition had an accrual basis of accounting been
applied.”
Primary and secondary financial information is further elucidated on page 23 of

the source document available at:
https://oag.treasury.gov.za/Publications/01.%20Annual%20Financial%20State
ments/03.%20For%20Prov.%20And%20Nat.%20Departments/GRAP%20for%2
0National%20and%20Provincial%20Departments/01%20Archives/MCS%20Doc
uments%20Dec%202015/Modified%20Cash%20Standard%20December%2020
15.pdf. It is, however, more easily accessed by googling modified cash
standard.
4.5.3 Accrual Accounting
The basis for the accrual accounting system is the accrual principle. Accrual
accounting recognises income when it is earned and costs when they are
incurred, irrespective of the actual timing of the receipt or payment of the cash
(Archibald, 1994:18 cited in Visser & Erasmus, 2002). Faul et al. (1994:96) also
emphasise that the income earned and the cost incurred are linked to a specific
financial period and that only those income and costs should be taken into
account when determining the profit/surplus of the entity. That means that the
income generated from services or goods are properly matched with the costs
incurred during the same financial period in delivering those services or providing
those goods (Archibald, 1994:18 cited in Visser & Erasmus, 2002). Archibald
further mentions that there are two key statements that result from the use of
accrual accounting, namely the operating account and the balance sheet.
The operating account shows what has happened in accrual terms over the
financial period and the balance sheet indicates the amounts that the entity still
owns and owes at the end of the financial period. In other words, accrual
accounting reports what was achieved and indicates the resources used in
achieving those outputs irrespective of when the cash was paid (Archibald,
1994:2 cited in Visser & Erasmus, 2002).

59
The OECD (1993 in Archibald, 1994:1 cited in Visser & Erasmus, 2002) also
indicates that “the additional benefits which accrual accounting can provide for
public sector entities include the ability to
• reflect and provide the basis for accountability for the additional flexibility
provided to public sector managers;
• underpin objectives for a more competitive approach to public sector
provision;
• facilitate more efficient and effective resource management;
• improve accountability by extending the notion of performance beyond the
use and application of cash; and
• provide a long-term focus on the effect of government and management
decisions.”
At the same time Archibald (1994:3 cited in Visser & Erasmus, 2002) also points
out that there are three arguments that can be used in favour of accrual
accounting:
• More openness
• Improved financial management
• Better performance measures and financial control
Additional context
Literature
According to Coe (1989:19 cited in Visser & Erasmus, 2002), the accrual
accounting system is superior to the cash accounting system since it provides a
better measure of assessing the public institution’s performance than the cash
accounting system (McKinney, 1995:34). In the past, accrual accounting has
traditionally been associated with the private sector and a business approach to
financial reporting and management, not only in South Africa but also in other
countries all over the world. Currently South African government departments
have converted or are converting their accounting systems to an accrual
accounting system in terms of the provision of the Constitution that GRAP must
be applied. In this regard, however, it is necessary to take note of the fact that
the governments of New Zealand and New South Wales already produce accrual
accounts (Archibald, 1994:5 cited in Visser & Erasmus, 2002). At the same time
the governments of Australia, the USA, Canada, Iceland and Ireland were also
moving to an accrual accounting system. This trend is indicative of the fact that
accrual accounting can be applied successfully in the public sector.

60
According to Archibald (1994:21 cited in Visser & Erasmus, 2002), the accrual
principle refers to the fact that the income and the costs incurred in earning the
income are matched to the relevant period. Archibald further points out that the
accrual principle is also referred to as the matching principle which will be
discussed further on. At the same time Melville (1997:15) views accruals as a
consequence of the matching principle, which shows that there is a strong
relationship between the accruals principle and the matching principle. It is
therefore not strange that Faul et al. (1994:43) state that only income earned
and expenses incurred during a specific period can be used in the determination
of profit or surplus. The income earned during a specific period is calculated
regardless of when it was received and the expenses incurred regardless of when
the payments were made. It is therefore important to keep in mind that money
that has been received but has not already been earned (goods or services not
been delivered) must be treated as a liability, since it constitutes an obligation
(advance payment). At the same time a liability also occurs when goods and
services have been received but not paid (Faul et al., 1994:44). On the other
hand, income that has been earned but not received as well as expenditure on
goods or services that have not been used are viewed as assets.
Spectrum of accounting methods
4.6 Accounting Cycle in Government
The accounting cycle in government includes five processes, namely the opening
of the books (journals) at the beginning of the financial year, the requisition of
funds, processing the transactions and the collection of revenue (and incurring
expenditure), simultaneously recording the transactions in the books of account
and reporting.

61
4.6.1 Opening of Journals
The opening of the government departments’ journals at the beginning of the

financial year (1 April) can take place only after the National and Provincial
Appropriation Bills have been passed, in other words, the national and provincial
budgets have been approved and promulgated by Parliament and the provincial
legislatures and have become legislation (Appropriation Acts) of Parliament
(DSE, 1997:45). Before then, departments in theory do not have any funds
available since section 213(2) of the Constitution of the Republic of South Africa,
1996 states that “money may be withdrawn from the National Revenue Fund
only (a) in terms of an appropriation by an Act of Parliament or (b) as a direct
charge against the National Revenue Fund, when it is provided for in the
Constitution or an Act of Parliament”. In the past, provision was made in terms
of section 4(1) of the Exchequer Act 66 of 1975 whereby departments could incur
expenditure before the Appropriation Bill has been promulgated. In March 1999
the Exchequer Act was replaced by the Public Finance Management Act of 1999.
This Act contains the same provision in terms of section 29(1), which states that:
“If an annual budget is not passed before the start of the financial year to which
it relates, funds may be withdrawn in accordance with this section from the
relevant Revenue Fund for the services of the state or provinces concerned
during that financial year as direct charges against the Fund until the budget is
passed.” Departments open their journals to register the total amount of funds
allocated to them according to the budget in their financial records.
4.6.2 Requisition of Funds
The requisition of funds that takes place on a monthly basis differs between
national departments and the provincial administrations. The national
departments request an estimated portion of their voted funds from the National
Treasury according to which they will finance their expenses during the following
month (DSE, 1997:45). These funds are transferred by the National Treasury to
the various bank accounts of the departments, which is also known as the
Paymaster-General accounts. Provincial administrations request an estimated
portion of their funds through the National Treasury, since provision is made on
a specific vote for the transfer of funds to the provinces. These funds are
transferred by the National Treasury to the various provincial revenue accounts.
Although the collection of income by departments will be discussed later, it is
important to bear in mind that the requisition of funds can also be seen as income
that must be collected since it provides the means for service delivery.

62
4.6.3 Processing Transactions
The processing of the transactions of government departments in the accounting

process includes the documentation of the financial information and the recording
of data in journals and ledgers. In other words, the transaction data is also
captured on source documents, analysed and journalised, and then posted to the
various ledgers. Since government departments are expenditure orientated,
their accounting systems focus primarily on payments made, for example in
terms of salaries, creditors, stationery and equipment (DSE, 1997:46).
Government departments use computerised accounting systems, primarily
prescribed and/or approved by the National Treasury. This implies that financial
officials only have to fill in the applicable data entry forms or screens to ensure
that the necessary payments are made. After the forms/transaction requests
have been approved by a delegated official, the transaction data is captured on
the accounting system where it is posted automatically to the relevant ledger
accounts. The output of the computerised accounting systems of government
departments is financial reports and warrant vouchers or cheques.
Vulindlela has been designed by the National Treasury as the preferred central
database that meets the needs of the Treasury and other stakeholders. Its
primary purpose is to provide management, policy and planning information that
will enable the state to operate its public financial management smoothly. The
vision statement for Vulindlela is “A financially informed management team” and
the mission statement is “We collect and manage data to deliver useful,
integrated information that supports financial management within government”.
The system provides online information from all spheres of government and is
supplemented by the periodic reports provided in accordance with the PFMA,
inclusive of the annual report and financial statements, Auditor-General’s
report(s) and the Early Warning System designed to consistently assess revenue,
expenditure and performance, and deviations from these activities. The benefits
of Vulindlela are as follows:
• Consolidated accounts
• Better cash-flow management
• Reduction in taxation
• Reduction in loan interest
• Facilitation of investigations (microlenders, ghosts, forensic)
• Compliance with Government Finance Statistics (GFS)
• Transparency and trustworthiness
• Current and comprehensive analysis

63
Additional context
4.6.4 Collecting Income
It has been mentioned that most government departments are expenditure

orientated, since they were established to provide in the specific needs of the
community and therefore have to incur expenditure in order to fulfil their
functions (DSE, 1997:46). However, there are cases where departments have to
collect revenue, referred to as incidental income.
Examples of such revenue are officials’ private telephone calls, outstanding debt
accounts as well as housing and rent received for government-owned property.
This income referred to as incidental income does not stem from the main
function of the department, since it is not directly related to the functions of the
department. This money can therefore not be utilised by the department, but it
must be paid over to the South African Revenue Service (SARS) that will deposit
the money in the National Revenue Fund.
The collection and administration of general revenue, primarily taxation, has

been extensively dealt with in previous courses and will not be repeated here.

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4.6.5 Reporting
There are two main types of reports produced by government departments,

namely external reports for the National and provincial treasuries, Parliament
and the provincial legislatures, and internal reports for the management of
departments (DSE, 1997:46–47). In terms of the Public Finance Management
Act of 1999, three types of external financial reports can be distinguished in the
public sector, namely monthly reports, quarterly reports and annual reports. In
terms of section 32 of the PFMA, government departments must supply their
statements of actual revenue and expenditure to the National Treasury within 30
days after the end of each month. Every provincial treasury, on the other hand,
must also submit, at least quarterly, a statement of revenue and expenditure to
the National Treasury with regard to the Revenue Fund for which that treasury
is responsible. In terms of section 8 of the PFMA, government departments must
also prepare financial statements for each financial year in accordance with
generally recognised accounting practice, which must be submitted to the
National Treasury within three months after the end of that financial year. On
the other hand, the internal reports that a department produces are monthly
reports that inform the head of the department and the senior managers of the
financial state of the department for the month. These reports enable the head
of the department and the senior managers to monitor and control the
expenditure of the department and its different sections.
4.7 Systems Supporting Accounting and Accountability
4.7.1 Background
The classification of the accounting structures in government accounting in South

Africa is determined by the need to provide financial data that can be used for
the submission of government accounts at the national level, as well as to provide
detailed information necessary at the subsequent departmental levels (FMS,
1984:1.4.2, 1.4.3 cited in Visser & Erasmus, 2002). In order to satisfy these
needs, a system was developed that can provide short- and long-term financial
information in any combination in a four-dimensional approach to budget data.
This approach requires that estimate (for budgets) and accounting information
at departmental level be linked with an objective structure, responsibility
structure, item structure and fund structure. This government accounting system
also makes provision for subsidiary and control accounts to balance the books,
as well as for clearing accounts that are used to record transactions temporarily
before final posting can be effected (Robinson & Staples, 1990:61 cited in Visser

65
& Erasmus, 2002). Therefore, a fifth structure has been provided for in the form
of a subsidiary ledger structure which was established analogical to the objective
structure. The latter two structures in combination with the other accounting
structures jointly form the ledger of a government department.
Additional context
Structures revisited
To better understand the different structures, a simplified explanation can be

provided as follows:
• The objective structure refers to the reason WHY the funds are needed or
spent.
• The responsibility structure refers to the entity THAT (WHO) requires or
spends the funds.
• The item structure refers to the goods and services ON WHAT the funds are
spent.
• The fund structure refers to the sources FROM WHERE the funds are spent.
• The relationship between the different structures can be described as the
following:
o An objective should always be linked to the budget vote or fund that
finances it or that should receive the income.
o Expenditure and income accounts must always consist of the four
elements, namely responsibility, vote/fund, objective and item.
The subsidiary ledger accounts must always consist of three elements, namely
responsibility and vote/fund as well as clearance or control accounts.
Accounting information can be obtained from the system for any of the
structures, although the accounting information is always available in any
combination of the structures.
The following transactions are recorded and processed in terms of the

government accounting system:
• All the expenditure-related transactions
• Money/income received by a department
• Transactions not concluded, whether they be income or expenditure related
• All the control transactions
Since government accounting is also based on the double-entry system, the total
set of accounting entries should always balance.

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It is important to keep in mind that in terms of Treasury Regulation 17.3, public
institutions in the national and provincial spheres of government may not amend
existing systems or introduce new computerised systems that will affect financial
administration without the prior approval of the National Treasury.
4.7.2 Banking and Cash Management
In terms of Treasury Regulation 15.2, the bank account configuration for the
National Revenue Fund comprises an Exchequer bank account, a Paymaster-
General bank account with the South African Reserve Bank, the four tax and loan
accounts with commercial banks and any other bank account opened to facilitate
the management of the National Revenue Fund. The National Treasury may open
additional accounts on such terms and conditions as it may determine.
Each provincial revenue fund must have a bank account configuration that
consists of at least an Exchequer bank account and a Paymaster-General bank
account, opened with a commercial bank. The head of a provincial treasury must
nominate one bank account, which is under the control of the provincial treasury
and is part of the provincial revenue fund, as the accredited account into which
all transfers from national departments must be deposited.
If the accounting process of a department requires a separate bank account, the

relevant treasury may approve one sub-account within the Paymaster-General
account of the relevant revenue fund. Such sub-accounts remain an integral part
of the bank account configuration of the relevant revenue fund.
Treasury Regulation 15.10 states that the Accounting Officer is responsible for
establishing systems, procedures, processes and training and awareness
programmes to ensure efficient and effective banking and cash management.
Additional context
Cash management
For purposes of Treasury Regulation 15.10, sound cash management includes

the following:
• Collecting revenue when it is due and banking it promptly.
• Making payments, including transfers and subsidies, to other levels of
government and non-government entities, no earlier than necessary, with

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due regard for efficient, effective and economical programme delivery and
the government’s normal terms for account payments.
• Avoiding prepayments for goods or services (i.e. payments in advance of the
receipt of the goods or services), unless required by the contractual
arrangements with the supplier.
• Accepting discounts to effect early payment only when the payment has been
included in the monthly cash-flow estimates provided to the relevant
treasury.
• Pursuing debtors with appropriate sensitivity and rigour to ensure that
amounts receivable by the government are collected and banked promptly.
• Accurately forecasting the institution’s cash-flow requirements so that the
National Treasury can optimise its central cash management responsibilities
on behalf of the government.
• Timing the inflow and outflow of cash.
• Recognising the time value of money, i.e. economically, efficiently and
effectively managing cash.
• Taking any other action that avoids locking up money unnecessarily and
inefficiently, such as managing inventories to the minimum level necessary
for efficient and effective programme delivery, and selling surplus or
underutilised assets.
• Performing bank reconciliations on a daily basis to detect any unauthorised
entries.
• Ensuring that dishonoured warrant vouchers and cheques are followed up
immediately.
• Separating duties to minimise the incidence of fraud.
Based on section 40(4) of the PFMA, Treasury Regulation 15.10.2 requires that
cash flow be managed as follows:
• The Accounting Officer must annually submit to the relevant treasury a
breakdown of anticipated revenue and expenditure in the format determined
by the National Treasury no later than the last working day of February
preceding the financial year to which it relates.
• By the 15th working day of February, provincial treasuries must submit to
the National Treasury projections of their expenditure, revenue and
borrowings in a format determined by the National Treasury.
• Once such amounts have been approved, modified as necessary after
consultation with the relevant treasury, the Accounting Officer may not draw
from the Revenue Fund more than the amount approved for a month without
prior written approval from the relevant treasury.
• If the Accounting Officer deems it necessary to adjust the approved
projections, the proposed adjustments must be motivated to the relevant

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treasury for evaluation against the availability of funds in the Exchequer
(Revenue Fund).
In terms of Treasury Regulation 15.10.3, public institutions may not open a bank
account without the written approval of the relevant treasury. Only bank
accounts approved after 1 April 2001 shall be considered as valid.
The National Treasury will negotiate with the approved banks for appropriate
banking services for national departments and constitutional institutions on a
regular basis. In terms of Treasury Regulation 15.9, each treasury must account
daily for the cash movements of all bank accounts in the books of its Revenue
Fund.
In terms of Treasury Regulation 15.5, all revenue received by a department must

be paid daily into its Paymaster-General account or, for amounts less than R500,
as soon as practicable, but at least by the last working day of the month. No
provincial department may receive transfers from a national department or public
entity directly; such funds must be deposited into the nominated banking account
of the province. Money collected by a department, which is not classified as
revenue, must be paid into the department’s Paymaster-General account and
accounted for in its ledger. This includes money received for agency services
provided to another department.
According to the Municipal Finance Management Act (MFMA) section 7, every

municipality must open and maintain at least one bank account in the name of
the municipality. All the money received by the municipality must be paid into
its bank account or accounts, and this must be done promptly and in accordance
with the requirements that may be prescribed. A municipality may not open a
bank account abroad or with an institution not registered as a bank in terms of
the Banks Act (Act No. 94 of 1990). A municipality may also not open a bank
account other than in the name of the municipality. Money may only be
withdrawn from the bank account in terms of the Act. The description of
municipalities’ primary bank accounts may be found in section 8 of the Act.
4.7.3 Utilisation of Revenue Funds
Every treasury is responsible for the effective and efficient management of its
Revenue Fund and must ensure that the Fund always has sufficient money for
appropriated expenditure and direct charges in order to meet the progressive
cash-flow requirements. Each Revenue Fund consists, at any given point, of all

69
cash balances of the funds derived from the relevant treasuries’ operating,
investment and financing activities.
In terms of sections 11(3) and 21(2) of the PFMA, money must be paid into a
revenue fund by depositing it into a bank account in accordance with the bank
configuration requirements. Money deposited into the Paymaster-General
account must immediately be available to the relevant treasury for funding
expenditure or investment according to its central cash management
responsibilities.
In terms of Treasury Regulation 15.6, provincial treasuries may, in accordance

with section 24 of the PFMA, temporarily invest surplus money in the provincial
revenue fund in an account in South Africa, approved as part of the bank account
configuration of the fund.
In terms of Treasury Regulation 15.7, the accounting officers of national

departments must submit requisitions to the National Treasury when requesting
the transfer of appropriated funds in accordance with approved cash-flow
estimates at least four full working days before the end of the month preceding
the month in which the funds are required. Provincial treasuries may determine
their own timescales in this regard. Provincial treasuries will receive their grants
from the National Revenue Fund in accordance with the payment schedule
determined in terms of the annual Division of Revenue Act.
In terms of Treasury Regulation 15.8, the Accounting Officer must surrender any
unexpended voted money to the relevant treasury for re-depositing into the
Exchequer bank account of the relevant revenue fund at the end of each financial
year and after the books of account of a department have been closed.
In terms of Treasury Regulation 15.11, private money may not be deposited into
an official bank account, except in accordance with the provisions relating to
money held in trust for other persons or bodies. State money may also not be
paid into a private bank account. The safekeeping of private money or personal
possessions in a state safe or strongroom is prohibited. However, an accounting
officer or an official authorised by the Accounting Officer may approve
arrangements for safeguarding personal effects reasonably held on official
premises in the course of official duty (e.g. by providing lockable rooms for staff).
State money may not be used to cash private cheques.
You must familiarise yourself with the overall municipal banking arrangements
as contained in sections 9–11 in the MFMA.

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4.7.4 Payments
The Accounting Officer is obligated in terms of Treasury Regulations section

8.2.3, unless determined otherwise in a contract or other agreement, to settle
all payments due to creditors within 30 days from receipt of an invoice or, in the
case of civil claims, from the date of settlement or court judgement.
Notwithstanding this prescript, the Accounting Officer must institute several
systems to facilitate this process.
Additional context
Systems to be implemented by the Accounting Officer
These systems include:

• Financial and risk management and internal control
• Internal audit process
• An appropriate procurement and provisioning system which is fair, equitable,
transparent, competitive and cost-effective:
o To properly evaluate all major capital projects prior to a final decision
on the project.
o To ensure the effective, efficient, economical and transparent use of the
resources of the institution.
o To prevent unauthorised, irregular and fruitless and wasteful
expenditure and losses resulting from criminal conduct.
o To settle all contractual obligations and pay all money owing, including
intergovernmental claims within the prescribed or agreed period.
o To ensure expenditure of that department is in accordance with the vote
of the department and the main divisions within the vote.
• Effective and appropriate steps to prevent any overspending of the vote of
the department or a main division within the vote.
In terms of section 44 of the PFMA, the Accounting Officer is empowered to, in

writing, delegate any of his/her powers and/or instruct any official in that
institution to perform any of the powers and/or duties assigned to him/her in
accordance with the PFMA. There are invariably institutions where the Accounting
Officer is able to manage the payment by himself/ herself, but this is not possible.
Consequently, officials must be adequately empowered to execute the
procurement and payment function on behalf of the Accounting Officer. Where
delegations are issued, they should carry the codicil: “You perform this duty as
if you are the Accounting Officer.”

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4.7.5 Departmental Debt
Departmental debt forms part of the systems supporting accounting and

accountability, but owing to the extent of the material it will be dealt with as a
separate topic.
4.8 Departmental Debt
Managing departmental debt is covered in a guide promulgated under the same

name and available from the National Treasury website at
http://www.treasury.gov.za. Selected sections are quoted here for study
purposes.
4.8.1 Definitions
• Debt means an amount owing to the department.

• Doubtful debt is debt that is due, but which might not be recoverable.
• Irrecoverable debt is debt that is due, but which is not expected to be
collected.
4.8.2 Origin of Debt
In terms of the Prescription Act, No. 68 of 1969, a debt is deemed to be due only
when the creditor (or the department) has knowledge of the identity of the debtor
and of the facts from which the debt has arisen [section 12]. This principle
requires that the department identify all debts within a reasonable period, i.e. as
soon as practicable, in order to prevent prescription.
Although the Accounting Officer designates officials with the responsibility for the
administration of debts, it is the responsibility of each employee of the
department to ensure that any debt arising in his/her sphere of work is identified
and reported to the appropriate officials for recognition and collection.
Failure to comply with the above could result in disciplinary steps being taken
against the employee, including the recovery of any loss the department may
have suffered [TR 12.7].
4.8.3 Managing Debt
Where debtors are managed properly, irrecoverable debts will be minimised.

Departments therefore need to establish and maintain a debt management policy

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and ensure its effective implementation. Departments should set up and
maintain a proper vetting process regarding the procurement of goods and
services, the collection of amounts due by debtors and the recording of
outstanding amounts. This should include the principal amount of the debt, as
well as the interest where applicable.
Departments must maintain a register (electronic or otherwise) of all debts.

Outstanding debtors should be investigated and responsibility determined. The
register must show who the debtor is; the type of debt; an age analysis; amounts
paid over to the relevant revenue funds from the collection of debts; details
regarding procedures followed to collect debt; and which debts are regarded as
doubtful.
Additional context
Managing debt
In managing debt, special attention must be paid to the following:

• A monthly reconciliation should be performed on all outstanding debtors to
determine the movement/status of the debt.
• The investigation of debtors must be segregated from the responsibility for
the collection, banking and reconciling of debtors.
• A separate file must be kept for each debtor for safekeeping of
documentation.
• The responsible official should sign a declaration certifying that debtor files
of the department are regularly updated with scheduled notifications of debt,
debtor statements, receipts and documentation, including copies of journals
pertaining to the management of the debtors.
• Debtors must be placed “in mora” before collection processes are affected.
This requires that the debtor be informed of the debt and given 30 days to
pay the debt. (Mora means wilful delay or default in fulfilling a legal
obligation.) Interest starts to accrue only after the 30 day “mora” period.
• The notice to the debtor must state that interest starts accruing 30 days
after the date of the notification or another time period stated in any
arrangements. Interest should be calculated on the decreasing balance of
the capital amount of the debt, and must not be capitalised. Interest levied
must also not exceed the capital amount.
• Accounting officers must assure that interest, where applicable, is calculated
and recovered together with the capital amount. Interest is recovered first
from all payments and the remainder utilised to redeem the capital.

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• The debt management policy needs to include reference to the provisions of
the Prescription Act, 1969 (Act No. 68 of 1969), especially Chapter III
(sections 10 to 16). Debt becomes prescribed after certain periods and
financial managers need to take these into account. This entails that the debt
can no longer be recovered from the debtor and should be written off.
4.8.4 Recovery of Debt
The initial value of the debt should be equal to the value of the goods or services
provided or in the case of a lost/damaged asset, the value should be the cost to
restore or replace the asset. The department may recover outstanding amounts
in instalments. The collection period should be realistic, taking the financial
position of the debtor and potential hardships into account. Realistic refers to a
period of between twelve (12) and thirty-six (36) months.
The debtor should be informed, in writing, as soon as a decision has been reached
on the number of instalments due, along with any terms and conditions attached
thereto. The collection period should be reviewed at least annually and any
adjustments should be communicated accordingly. If a debtor offers to settle the
debt at a value less than the current balance, the offer may be considered only
if it would be to the advantage of the state to accept the settlement. The
settlement agreement should be confirmed in writing with the debtor, without
prejudice.
The department can withhold departmental debt from any amount payable to
the applicable debtor, such as leave discounting, service bonus or overtime.
Minimum Debt Management Procedures
The following minimum debt management procedures must be adhered to before

a debt is regarded as irrecoverable debt:
• Once a debt has been taken on, a letter of demand is sent to the debtor (this
is when he/she is placed “in mora”). The debtor is expected to respond by
either acknowledging or disputing the debt.
• Where no response is received after an appropriate period of, for example,
thirty days, the letter of demand is followed up with a second reminder,
giving the debtor another chance to respond.
• If a valid response is received, a debtor’s statement is forwarded to the
debtor or alternatively the debtor’s representative in order to initiate the
collection process and to specify the terms and conditions of payment.

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• Where no response is received, procedures for tracing the debtor must be
initiated, taking into consideration the economic benefit for government by
measuring the cost of tracing the debtor against the debt amount.
• If a negative response is received, the Accounting Officer can approve an
adjustment to the principal amount, negotiate its repayment or refer the
matter to the State Attorney for a recommendation. All outstanding referrals
to the State Attorney should be regularly followed up.
• Where write-off is advised by either the State Attorney or the Accounting
Officer, the debt write-off process must be followed.
4.8.5 Debt Prescription
Debt prescribes after a certain period of time. The period of prescription varies
depending on the debt type. Section 11 of the Prescription Act sets out the
following periods:
1. Thirty (30) years – judgement debt, debt secured by a mortgage bond,
taxation debt or levies imposed by law and/or debt relating to mineral
rights.
2. Fifteen (15) years – debt owed to the state and arising out of an advance
or loan of money or sale or lease of land by the state (excluding debt
mentioned in 1 above).
3. Six (6) years – debt arising from a bill of exchange or negotiable instrument
(excluding debt mentioned in 1 and 2 above).
4. Three (3) years – any other debt except where an Act of Parliament provides
otherwise.
Prescription is suspended where the debtor is outside the country and when the
debt is the object of dispute subjected to arbitration [section 13].
Prescription is interrupted by acknowledgement of liability by the debtor and

prescription begins to run anew [section 14].
Additional context
Prescribed debt can be explained as old debt that has not been acknowledged
over a period of three years. More specifically, a debt is prescribed if:
You have not acknowledged the debt in the past three consecutive years, either
in writing or verbally.
You have not made a payment or promised to make a payment to the
outstanding debt amount.

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You have not been summoned to make a payment by a creditor for the debt
within the past three consecutive years.
Debt Busters. What is prescribed debt. https://www.debtbusters.co.za/what-is-

prescribed-debt/.
4.8.6 Irrecoverable Debt
The following circumstances can be indicative of situations where debt can be

regarded as irrecoverable:
• The debtor has no assets or income.
• The relevant department made all reasonable efforts to trace and inform the
debtor of the outstanding debt without success.
• The amount received from an insolvent estate did not cover the debt and
interest.
• Where a danger exists that the department will be required to make a
contribution towards the settlement of an insolvent estate if the claim is
lodged against this estate.
• The department determines that it would be uneconomical to recover the
debt.
• The department determines that assets of a debtor’s estate are of little value
and cannot be used to recover the debt.
Where the debt is irrecoverable debt, the following steps should be followed:
• A submission to the Accounting Officer has to be prepared to obtain approval
for the debt to be written off. This submission, authorising the write-off,
should confirm that the debt management policy has been followed and
detail the reasons for the write-off in the applicable programme.
• When the debt is considered for write-off, the status of the debt is to be
changed on the debt functionality from active to doubtful, and interest must
continue to be accumulated until the date the write-off is approved.
Additional context
Legal framework
In terms of the Public Finance Management Act (PFMA), No. 1 of 1999, the
Accounting Officer:
• Must ensure that the department has and maintains effective, efficient and
transparent systems of financial risk management and internal control
[section 38(1)(a)(i)].

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• Is responsible for the effective, efficient, economical and transparent use of
resources of the department [section 38(1)(b)].
• Must take effective and appropriate steps to collect all money due to the
department [section 38(1)(c)(i)].
• Must keep full and proper records of the financial affairs of the department
within prescribed norms and standards [section 40(1)(a)].
• Comply with any regulations issued by the National Treasury [section 76].
4.9 Municipal Debt: A 2017 Case Study
4.9.1 Introduction
The aim of this section of the topic is to critically evaluate the reasons and impact
of non-payment of services. The section looks at the reasons for non-payment
of services by assessing whether the non-payment of services is primarily an
issue of the inability to pay or unwillingness to pay by some community
members.
Although the focus of the study is specifically on the Mogale City Local
Municipality (MCLM), the sample is regarded as sufficiently definitive to consider
the findings universally applicable in the RSA.
The data collected was analysed and some findings on the reasons of non-
payment revealed that poverty, unemployment, poor income level, culture of
entitlement rooted in apartheid and lack of trust, unwillingness to pay owing to
various reasons and the poor standard of services are reasons for non-payment
of services. Other findings revealed that non-payment of services negatively
impacts the municipality and frustrates the cash flow of the municipality, affects
service delivery, slows down economic growth and forces the municipality to
secure loans that result in increased debt. To this must be added that existing
legislative frameworks and policies created to combat the non-payment of
services have achieved only limited success.
The local government, as a sphere of government, is charged with the

responsibility of providing appropriate services to communities. This is achieved
through executive institutions called municipalities. The mandate is provided by
the Constitution of the Republic of South Africa, 1996 (hereafter referred to as
the Constitution). Municipalities are also mandated by the Municipal Systems Act
(Act No. 32 of 2000) to charge service tariffs for the services they deliver. These
services must be paid for by the recipients in order for the municipality to remain

77
sustainable. Non-payment for municipal services has been a dominant culture in
township communities across South Africa since the 1980s (McDonald, 2002).
A service payment is the payment of a fee for direct receipt of a public service
by the party benefitting from the service (McDonald, 2002). Municipal cost
recovery efforts in terms of service payments in South Africa have resulted in
civil unrest, specifically among poorer people desperate for services they cannot
afford. Historic post-1994 service-related civil unrest includes the massive 2001
demonstrations where approximately four million citizens went on a 3-day strike
to protest over cost recovery efforts (McDonald, 2002).
Not recouping the cost of services has a serious impact on the ability of
municipalities to adhere to the constitutional requirement of ensuring that
services are effectively and efficiently provided to satisfy the basic needs of the
citizens. Of the services provided, the most important are waste collection and
disposal; provision of water; sewage and electricity supply; refuse removal; and
gas supply. Other services include storm water drainage, street lighting, health,
municipal parks and recreation (Van der Waldt, 2004).
Additional context
Definition of terms
Non-payment: Non-payment refers to the municipal consumer debt of property

rates, charges or fees for the provision of services by municipalities such as
sanitation, electricity and refuse removal, as well as traffic fines and rental house
payments which form part of other financial obligations of the municipality.
Importantly, municipal consumer debt has quite a number of potential impacts
(Mavhungu, 2011).
Service delivery: Service delivery is the provision of critical social services such
as water, electricity, sanitation and refuse removal as well as road maintenance
(Ngxongo, 2003).
Debt collection: Debt collection is the implementation of measures that are

necessary to collect unpaid municipality income from the customers. This is
money owed by customers who are viewed or rather categorised as debtors by
the municipality (Mogale City Local Municipality, 2016).
Credit control: Credit control can be defined as the limiting of provision of

services to debtors in arrears and the process of negotiating for payment in

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exchange for normalising further service delivery (Mogale City Local Municipality,
2016).
Public sector corruption: Corruption in the public sector can be defined as the
misuse of funds or the abuse of public office for private gain. Nonetheless, public
corruption can manifest in various forms and a wide array of illicit behaviour such
as bribery, extortion, nepotism, fraud, graft and embezzlement of funds (World
Bank, 2011).
Informal settlement: An informal settlement can be defined as an area which

may have groups of units that have been built on land that dwellers have no
legal claim on, which means the units may be built illegally (Glossary of
environment statistics, 1997).
4.9.2 Non-Payment of Municipal Services, Past and Present
According to Peters (2012), municipal debt can cripple a municipality’s ability to

satisfy constitutionally mandated responsibilities and also constrains the cash
position of municipalities. Non-payment of municipal services rendered can also
reduce the availability of finance for the provision of other services such as
infrastructure development, upgrading and maintenance.
Nonetheless, outstanding payments limit the ability of the municipality in such a

manner that resources are forgone that could have been used to improve the
standard of living of the poor (Financial and Fiscal Commission, 2008). There are
various reasons why this type of debts arises. Among these reasons could be
weak credit control measures and customer service by municipalities, and poor
municipal performance such as inaccurate billing (Financial and Fiscal
Commission, 2008). All these factors may lead to non-payment of municipal
services. This also means that those consumers able to pay may become
unwilling to pay owing to dissatisfaction with service delivery.
Most of the studies conducted regarding non-payment point to a problem that

eventually came to be known as the culture of non-payment of municipal
services. As mentioned before, this phenomenon originated from the liberation
struggle. It was used as a form of resistance against the apartheid government.
This form of protest was common among black people and black-dominated
areas. Despite the transition to democracy and the local government structures
arising from the newly established democratic processes, very little has changed;
non-payment of services are ongoing.

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Municipalities are required to adopt and implement a tariff policy that applies to
the fees levied on municipal services in terms of the Municipal Systems Act, Act
No. 32 of 2000. The Act further lists a number of principles that should be
reflected in the policy. The amount charged to an individual must generally be in
proportion to his/her use of the service in question. In terms of the Municipal
Systems Act, households that are poor must at least have access to basic
services. The legislation cannot be pragmatic; conversely, pragmatism becomes
impossible and the consequence is the non-payment of municipal services by
those who consume the services rendered.
After 1994 South Africa focused on the delivery of services to the majority of
African inhabitants (predominantly rural) who have been historically deprived of
basic essential services. The revenue for these services constitutes the largest
portion of a municipality’s gross income. Municipalities also provide services such
as parks, street lights, library services and municipal roads for which consumers
are not necessarily billed for directly, but they are financed through grants and
property rates and taxes. It is also important to note that where these services
are of a high quality, people will migrate to that area, implying that poor-quality
services may lead to the relocation of the dissatisfied consumers. Migration has
therefore been in existence since the challenge of non-payment of municipal
services began to manifest itself (Mavhungu, 2011).
The problem of non-payment for municipal services, mainly perpetrated by the

black community, originated from the apartheid era when it was used as a tool
to achieve democracy and an equitable dispensation for all. This created a culture
of non-payment of services and no regard for municipal systems. During the
apartheid era, especially in the late 1980s, many rural areas and townships
boycotted municipalities by not paying for rent and other user charges and this
was considered as a paramount weapon to protect themselves against what was
deliberated as an illegal regime (Bardhil, 1998; Bond, 2000).
4.9.3 Municipal Debt and Challenges Faced Owing to Non-Payment of Municipal

Services
All organisations require revenue to attain their goals and objectives, irrespective
of whether they are profit or service driven. Without sufficient funds a
municipality is unable to fulfil its role as a primary service provider. Where funds
are available, local government will be financially empowered to secure the
necessary personnel, equipment and other resources to ensure adequate service
delivery. Non-payment of services causes revenue decline, obstructs the process
and deprives communities of basic services.

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Poverty and unemployment are serious issues in South Africa and it is incumbent
upon municipalities to contribute to economic development, inclusive of job
creation and poverty alleviation. This is partially achieved through the provision
of free basic services (FBSs) to households that live in poverty. Municipalities are
hamstrung in achieving the balance needed when they are constrained by a lack
of funding and not assured of adequate revenue streams.
Municipalities fulfil their mandate of service delivery through important sources

of revenue: (1) the equitable share for local government from the national sphere
of government and (2) revenue generated by the municipality itself through the
collection of property rates and taxes (for services delivered). Non-payment of
municipal services restricts municipalities in their provision of the demarcated
services.
Non-payment negatively impacts municipal budgets, cash flow (liquidity) and

service delivery. Similarly, non-payment influences both the capital and
operating budgets, capital being manifested in the tangible equipment, enduring
and required for the long-term sustainability of the institution, and operating
covering the day-to-day expenditure. Furthermore, cash-flow problems caused
by non-payment of services have created municipalities that are unable to
provide quality services. Ngxongo (2003) summarises the negative impacts as
follows:
• Non-payment of municipal services stresses any abilities of a municipality to
raise loans on competitive terms.
• Non-payment cripples any growth measures.
• It stresses any efforts of council to gain a competitive advantage over other
centres by negatively affecting tariffs and thus requiring higher than inflation
increases.
• It weakens the ability of a municipality to spend on infrastructure
development which is dreadfully needed for rectifying underdevelopment in
certain areas and for economic growth.
• Non-payment of municipal services disturbs the strategic plan of the council
in different ways and places pressure on an already strained budget with a
resultant decline in service levels.
4.9.4 Reasons for Non-Payment of Municipal Services
Non-payment of services does not only relate to the inability to pay. It also
results from a free-rider mentality or a culture of entitlement. It relates to
whether the local government is viewed by citizens as a body that acts in their
best interests. It can be said that individuals look at three dimensions of trust
(Cashdan, 2002). Indeed, communities would want to know if there is

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compliance whereby individuals will “trust in the local government to use
revenues to provide expected services, trust in other citizens to pay their share
and trust in the authorities to establish fair procedures for revenue collection and
distribution of services” (Cashdan, 2002).
The two-way process whereby the municipality provides services and the
recipients of those services reimburse the municipality according to the laid-down
tariffs is currently under severe pressure in South Africa and does not look to be
dissipating anytime soon. For this reason, there is a need to explore the factors
behind the non-payment of services. It can be said that an analysis of the existing
body of literature points to various aspects (Majikela, 2007).
Poverty
In the light of South Africa’s mixed population of “haves” and “have-nots”, the
municipalities’ problem of non-payment is exacerbated by the increase in poverty
and unemployment. The procurement of services such as water and electricity
and their redistribution without reimbursement from the users cause
municipalities’ debt burden to escalate, leaving them with an ever-increasing
liquidity problem.
Where the inability to pay may be linked to poverty and unemployment, it must
be recognised that the three aspects are not necessarily the same. Households
existing on minimal income may be categorised as poor, but certainly not
unemployed. The inability to pay may be the consequence of insufficient income
to meet all the household commitments and the cost of municipal services is
relegated to the lowest priority. Unemployment will of necessity cause the
household to lack the funds to pay for the services rendered.
According to the South African Survey (2001) “some 47.8% of people living in
South Africa in 2000 were surviving on or below a monthly household income of
R800.00”. It creates a dark picture in terms of the financial capabilities of the
South African population at large when one considers that the surveys of the
South African Advertising Research Foundation indicate the proportion of people
living in poverty in South Africa to be increasing by around 1% to 2% a year
(Mavhungu, 2011).
Unemployment
The South African Survey of 2001 states the unemployment percentages at

44.9% for black people living in rural areas; 31.7% for Indians; 22% for coloured
people; and 2% for white people. According to Craythorne (2006), South Africa

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is faced with a serious problem. Service providers and municipalities are put
under pressure as there is migration from rural areas to urban areas by poor
people seeking work to improve their standard of living. This situation has
created large-scale urban unemployment, consequently placing pressure on
service providers and municipalities as rural immigrants cannot afford to pay for
services while they are still seeking for work.
Additional context
Employment by province and municipality
Province and Oct to Dec Jan to Mar Change Percentage
municipality 2015 2016
South Africa 16 018 15 663 –355 –2.2
Western Cape 2 380 2 353 –26 –1.1
Non-metro 869 838 –30 –3.5
City of Cape Town 1 511 1 515 4 0.3
Eastern Cape 1 411 1 367 –44 –3.2
Non-metro 822 789 –33 –4.0
Buffalo City 245 231 –14 –5.8
Nelson Mandela Bay 344 347 3 0.9
Free State 825 790 –35 –4.2
Non-metro 559 539 –20 –3.5
Mangaung 266 251 –15 –5.7
KwaZulu-Natal 2 529 2 488 –41 –1.6
Non-metro 1 406 1 508 103 7.3
eThekwini 1 124 980 –144 –12.8
Gauteng 5 090 4 895 –195 –3.8
Non-metro 623 594 –29 –4.6
Ekurhuleni 1 256 1 145 –111 –8.9
Johannesburg 1 950 1 925 –24 –1.3
Tshwane 1 261 1 230 –30 –2.4
Other 3 783 3 770 –13 –0.3
“‘Other’ includes Northern Cape, North West, Mpumalanga and Limpopo.
These provinces do not have metropolitan municipalities.”
(Statistics South Africa, 2016:13)
It is clear that unemployment and poverty compel many people to live either on
or below the breadline. Stated differently, many people do not have the means
to either purchase or afford the services received. Policies such as Local Economic
Development (LED), the Integrated Development Plan (IDP) and the Indigent

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Policy should go a long way to alleviating the municipalities’ problem of non-
payment.
Lack of trust vs a culture of entitlement
Aside from the previous discussion, trust is a significant contributor to the issue
of non-payment and local government should be considering this. People become
reluctant to pay for services once they lack assurance of the eventual use of their
money. Trust breaks down when the people question the administrators
(councillors) in the usage of funds. This element therefore merits consideration
in the debate on non-payment. Consider the following quotation:
The perceived mismanagement of municipal funds by the officials that

South Africans have elected has caused people to stop paying for their
services and municipal rates and taxes. Thus, the unequal spending
patterns and budgets of local governments in the past have left many
municipalities, especially those in historically disadvantaged areas,
with severe financial difficulties (Kromberg, 1995:33).
There is a sentiment that the previous regime faired fairly well in the provision
of infrastructure development which has, in many cases, deteriorated to the point
of collapse and service delivery is non-existent. The resultant politicians’
promises have not borne fruit and there is little to no trust. Kromberg (1995)
states that people are not paying for services because of lack of trust. Timm et
al. (1998) argue that people have no faith in councillors because they are
perceived to have little knowledge of how municipalities work. The promises
made to the people have not materialised and they are still without services. The
result is a clear breakdown in trust as the elected councillors, both past and
present, provide only partial or no services at all.
This lack of trust is manifested in repeated protests by municipal rate payers

emanating from the lack of service delivery which in many cases is directly linked
to corruption (according to research conducted). The nature of non-payment
must not be underestimated as it stems from a number of reasons. Research
suggests that most communities resist paying as they are unsure of the final
destination of the money paid (Mavhungu, 2011).
Meiring and Parsons (1994) state that apathy, which may present itself in the
form of ineffective, unresponsive officials, underperforming public programmes
and politicians who are unable to mobilise public participation and co-operation,
has also contributed to the lack of trust which has led to non-payment of services.
In South Africa, many consumers have developed an indifference to their local

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governments and to any service providers that are linked to these governments.
Most communities may claim other factors such as poverty and unemployment,
but the habit of non-payment of services in South Africa has in many instances
been due to the lack of trust (Kromberg, 1995).
In developing the argument of reasons for non-payment one must look a little
wider than just lack of trust. Statements such as “It is impossible to pay every
month as I cannot afford it”, “I prioritise my debts and therefore I have to pay
different debts which leaves me with no money” or “I am experiencing financial
problems” may be a sign of unwillingness to pay rather than a lack of trust.
Craythorne (2006) refers to the problem of non-payment as the culture of
entitlement and dependency. This argument is echoed by Hagg (1998) who
maintains that the liberation promises made by the ANC and the political
liberation struggle that residents went through during apartheid has created a
culture of entitlement. Hagg adds that “civil disengagement or apathy has
become an increasingly serious problem in South African communities”.
The problem of non-payment of services has been greatly complicated by

businesses who make a profit but still do not pay for the services. This manifests
itself as opportunism. Instead of paying for their services and encouraging their
employees to do the same, these businesses do not pay (Kroukamp, 1995).
Similarly, some businesses have claimed that they are in debt of more than R62
million which was accumulated by the historically black areas in 1995. This claim
seems to be the excuse of most businesses in South Africa. This may be seen as
more of an “entitlement culture” rather than debt being the reason for non-
payment.
The culture of entitlement is one of the reasons for non-payment of municipal

services in South Africa. Contrary to popular belief, the culture of entitlement
manifests itself largely as a free-rider mentality. Free riders are those who
consume more than their fair share of a public resource, or shoulder less than a
fair share of the costs of its production (Goodstein, 2014). Simply put, free riding
is similar to opportunism and the culture of entitlement.
Dissatisfaction with the quality of services
According to Mavhungu (2011), dissatisfaction with the quality of services may

be the reason for communities not to pay. People do not pay because they are
not satisfied with the services provided to them by the municipality. Mavhungu
further argues that effective service delivery involves the provision of services
such as electricity to consumers, firstly at the level which they can afford to pay
and secondly at the level they require. Consequently, electricity has become a

85
problem as load shedding has become rampant. Some individuals blame the
municipality for power cuts and not Eskom. These communities do not pay as
they have constant power cuts. Furthermore, the quality of services varies
significantly between suburban areas where the provision of services are reliable
and of good quality, and the townships and rural areas (Mavhungu, 2011).
Timm et al. (1998) argue that if people do not perceive service delivery to be up
to standard and affordable, then this leads to non-payment of services. According
to Ringane (2013), the electricity infrastructure in South Africa has aged.
Consequently, its production of energy at the level that it should cannot always
be maintained and this leads to power outages. In such instances citizens may
feel that they do not have to pay for something that they are not happy with.
Ringane also cites the argument that in some cases the quality of services varies,
especially in the suburban areas where the provision of services is reliable and
of good quality compared to those in the townships and rural areas. This situation
creates unequal delivery of services and leads to those in the townships not being
prepared to pay for their services while those in rural areas do not even
understand the significance of paying for services.
Kroukamp (1995:194) states that a common complaint received from many

communities is that they are being charged for services that are non-existent or
of a very poor quality. Furthermore, some communities are being charged old
tariffs that were determined by local councils that are now defunct. Mavhungu
(2011) also notes that there are some communities that claim that there are
inconsistencies in their monthly accounts. This situation is worsened by the fact
that in many cases their bills are completely incomprehensible. Many areas in
South Africa are devoid of the basic infrastructure for the collection of levies, and
this results in people not being properly billed or not billed at all. Residents in
historically disadvantaged areas are frustrated by the general lack of
improvement in their quality of life.
Additional context
Findings emanating from research conducted to add credence to the
aforementioned elements
The main themes that emanated from the data analysis include poverty and
unemployment, a negative attitude towards payment for services, lack of trust,
the quality of services, the billing system of the municipality, the credit and debt
collection processes, performance regarding revenue collection and failed
projects of the municipality. The themes and their sub-themes are presented
below.
Themes Sub-themes
Lack of trust Corruption

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Failure to deliver on promises
Negative attitude towards Opportunism
payment for services Apartheid-era struggle mentality
Culture of entitlement
Poverty and High cost of living
unemployment Poor remuneration
Lack of employment and underemployment
Service delivery Poor quality of services
Billing and payment Receiving and paying bills
system
Credit and debt collection Background of policy
processes Credit control and debt collection measures in place
Effectiveness of the current measures
Performance regarding Collection rate
revenue collection Outstanding debt
Municipal loans
Municipal projects Failed municipal projects
The detail for each theme may be sourced from the research document available
from Ms B Mosiane, lecturer at STADIO.
4.9.5 Recommendations
In an effort to empower communities and municipalities alike, local authorities

should launch educational programmes in which the system of quid pro quo is
fully understood. The era of resistance and the response to the vestiges of the
now defunct apartheid ideology should systematically be removed and the free-
rider sentiment should be replaced with an approach where services are provided
against reimbursement, notwithstanding the option to favour the destitute with
free or subsidised services. This can be achieved via community workshops to
educate communities regarding the system by which local government provides
services. To this may be added the responsible use of the utilities available and
the avoidance of all elements of wastage.
There should also be a focus on fully understanding the role of municipal officials
in service delivery, namely building a clear intergovernmental relations unit
which will work towards promoting harmonious and fully integrated operations
within the municipality and with other spheres of government and community
bodies. The intent must always be to foster good working relations among the
three spheres of government and the local community. Co-operation at all levels
invariably harnesses support where necessary and precludes political
interference and conflicts that frustrate and delay the much-needed service
delivery, and ultimately convinces customers to pay for services.

87
More recommendations are the following:
1. Policies, for example the Indigent Policy, should be streamlined to ensure that
those who qualify are included in the programme, as many households are
living in dire poverty and cannot afford to pay for services, and are entirely
dependent on social grants.
2. Municipalities would do well in ensuring that contractors commissioned to
provide infrastructure and services are adequately qualified and sufficiently
capacitated to meet the brief within the budget and provide value for money
throughout. To this end municipalities should themselves ensure the
appointment and continuous empowerment of their own staff to satisfy both
the post and person profiles. The processes by which the work is
accomplished must similarly be fully compliant with the regulatory
frameworks. The municipality must lead and must be seen to be leading in
every aspect of its administration.
3. Municipalities must be seen to be actively involved in the creation of
employment for the local communities. The possibilities are endless in areas
of hygiene and sanitation, such as cleaning community stadiums, parks and
the streets. Qualified people should be employed. Adherence to the code of
conduct must become second nature and a sense of propriety and pride must
be inculcated in municipal officials.
4. Community policing forums can be established and those already in existence
can increase their vigilance with the support of the SAPS in ensuring the
reduction of electricity theft and the dangers associated with illegal
connections.
5. Municipalities should increase their governance structures and specifically
their risk strategies to pre-empt possible fund losses and they should institute
mitigating factors which may ultimately reduce costs and increase cash flow.
This strategy will enable the municipality to accumulate sufficient funds in the
case of non-payment so that it does not have to apply for costly bank loans.
Municipalities must be painfully aware of what their major cash outflows
constitute and they must continuously be assessing how these costs can be
curtailed and/or abandoned.
6. Municipalities must ensure that transparency and openness prevail
throughout as these are among the Batho Pele principles promised by
government. Transparency on how a municipality approaches its business,
inclusive of its future plans, goes a long way in establishing and maintaining
trust. Municipalities must regularly brief their customers openly and honestly
about current and future projects. Municipalities should be ready to be held
accountable and should not shy away from the difficult questions. Briefings
should include debt and its cause, elements to ensure economic growth,
intentions about future investments and ways of creating employment.

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Community involvement is of cardinal importance and trust is enhanced as
the community is progressively being involved. The more the community
trusts its administrators, the more it will be prepared to contribute to its
success, more specifically by paying for the services received.
7. When it comes to administration and, more specifically, the billing process,
municipalities must be squeaky clean. In other words, they must be above
suspicion, beyond reproach, faultless, highly respectable and brutally honest.
All services must be billed according to each household’s consumption
inclusive of effectual metering. Billing statements must be prepared with the
layperson in mind and should not be examples of poor administration or tardy
service. Measures to accommodate already hard-pressed customers must be
instituted and meticulously applied. Municipalities must ensure that revenue
and debt collection methods are improved and that a general culture of
payment is established.
8. Where local businesses have been recalcitrant payers, they should be
engaged using the relevant elements discussed above to be brought on
board. A strategy must be developed whereby business entities do not
become the measure for non-payment. Conversely, they should set the
example which will in turn encourage the municipalities’ clients to pay for
their services. Business institutions could hardly expect their customers to
pay while they themselves are in breach of payment.
4.9.6 Conclusion
Too many municipalities are experiencing problems with non-payment of

services rendered to the community. Non-payment of services is due to various
reasons, ranging from unemployment and underemployment, poverty, lack of
trust, a culture of entitlement to dissatisfaction with the quality of services.
However, many people receive their bills and pay their bills.
Municipalities need to reassess the quality of the services provided, especially in

respect of the impact it has on the willingness of the customers to pay for the
services. This must be aligned with the ability of the community as a whole to
settle accounts. This presupposes that there are individuals who are unable to
pay and would need to be provided with free services.
The non-payment of services has a negative impact on the cash flow of the
municipality, slows down economic growth and interferes with the quality of
services provided. The administration supporting the collection of outstanding
payments must of necessity receive urgent attention. There is also the issue of
compliance with the regulatory framework and to what extent the community
recognises the mutual benefits to be derived from the payment of services. The

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municipality and the community need to work shoulder to shoulder to ensure
that everyone receives these benefits.
4.10 Availability of Financial Information
Based on section 40(1)(a) of the PFMA, Treasury Regulation 17.2 requires that
accounting officers of institutions, subject to the provisions of the relevant
national or provincial legislation, retain the following financial information in its
original form:
• Information relating to one financial year – for one year after the audit report
for the financial year in question has been tabled in Parliament or the
provincial legislature
• Information relating to more than one financial year – for one year after the
date of the audit report for the last of the financial years to which the
information relates
After the above retention periods have expired, the information may, if required,
be secured in an alternative form that ensures the integrity and reliability of the
data and also ensures that the information can be reproduced, if necessary, as
permissible evidence in a court of law.
The following standards apply to the retention of certain types of records:
Must be retained
Type of Record
for (Years)
1. General ledger and cash books or similar records 15
2. Main transaction summary records, including general 10
journals and transaction summaries
3. Internal audit reports and system appraisals
4. Primary evidentiary records, including copies of forms 5
issued for value, vouchers to support payments made,
pay sheets, returned warrant vouchers or cheques,
invoices and similar records associated with the receipt
or payment of money
5. Subsidiary ledgers, including inventory cards and
records relating to assets no longer held or liabilities
that have been discharged
6. Supplementary accounting records, including, for 5
example, cash register strips, bank statements and
time sheets

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7. General and incidental source documents not 5
included above, including stock issue and receivable
notes, copies of official orders (other than copies for
substantiating payments or for unperformed
contracts), bank deposit books and post registers
When financial information is required as evidence in proceedings before a court,

Parliament, a provincial legislature, an official inquiry or otherwise, or for
purposes of an audit, it must be secured in its current form until no longer
required, even if the National Archivist has authorised its disposal.
4.11 Conclusion
By now you should have a better understanding of what is involved when we

discuss accounting in the public sector. Based on the information provided in this
topic, you should be able to understand the importance of accounting in any
organisation, but you would have noticed that it is closely linked to the budgeting
cycle and as such is not as comprehensive as the broader field of financial
management. In this topic you came to understand both the concept of
accounting and how it links with accountability. By now you should also be able
to define accountability, describe the different types of accounting, explain what
the bases of accounting are and which serves our purpose best. There was also
a discussion on the necessity of an accounting policy and for the first time you
were made aware of how government entities deal with public debt. Noteworthy,
of course, are the monumental sums of money being lost owing to poor debt
collection.
One should again emphasise the fact that accounting is only a management tool
that can be used as part of the financial management process. For the line
manager it is of value as far as the production of financial reports are concerned
and it can be used for decision-making purposes regarding service delivery and
development.
4.1. Define the concept “accounting”. (10 marks)

4.2. Explain the purpose of accounting. (5 marks)
4.3. Differentiate between accounting and accountability and indicate how they
complement each other. (10 marks)

91
4.4. Describe the different types of accounting. (briefly: 10 marks;
comprehensively: 25 marks)
4.5. Label and explain the approach used to manipulate the books of account
to satisfy a particular outcome and provide examples. (15 marks)
4.6. Explain the purpose of the accounting policy in government. (briefly 10
marks; comprehensively 20 marks)
4.7. Describe the various bases for accounting in the public sector.
(individually 5 marks; together 25 marks)
4.8. The Accounting Standards Board (the Board) is required in terms of the
Public Finance Management Act (PFMA), Act No. 1 of 1999, as amended,
to determine generally recognised accounting practice referred to as
Standards of Generally Recognised Accounting Practice (GRAP). For which
entities must the Board determine GRAP? (10 marks)
4.9. Identify and summarise the accounting cycle in the public sector. (briefly
10 marks; comprehensively: 15 marks)
4.10. Reproduce a simplified explanation of structures supporting the
accounting systems used in government. (10 marks)
4.11. Explain the utilisation of revenue funds in the public sector in South Africa.
(briefly 10 marks; comprehensively 20 marks)
4.12. Describe the manner in which payments should be made in the public
sector. (10 marks)
4.13. Explain the administration of departmental debt under the following
headings:
• Definitions and origin of debt (10 marks)
• Managing debt (10 marks)
• Recovery of debt (20 marks)
• The circumstances indicative of situations where debt can be regarded
as irrecoverable (10 marks)
• The minimum procedures required when a debt is regarded as
irrecoverable (10 marks)
• Debt prescription (10 marks)
4.14. List and explain the reasons for the non-payment of municipal accounts.
(15 marks)
4.15. Explain how the non-payment of municipal debts can be overcome. (15
marks)
4.16. Identify the periods for which public institutions should retain financial
information documents. (10 marks)

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Topic 5
Oversight and Control by Parliamentarians
and Other Non-Financial Functionaries
Prescribed Reading
5.1 Introduction

• Defend PFM by distinguishing the components and justifying the role each
plays to complete the whole.
• Understand and explain the origin and purpose of parliamentary oversight.
• Identify the items within the current framework of parliamentary oversight
that relate specifically to PFM and explain their purpose.
• Differentiate between parliamentary oversight committees and institutions
supporting constitutional democracy and indicate how they both enhance
Parliament’s oversight functions.
• Explain the importance of the line/operational manager in PFM.
• Identify the customary functions of PFM and differentiate between the roles
of line/operational and financial managers for each function.
• Explain the role of the CFO in integrating the functions of the line and
financial managers.
• Describe the contextual elements that the line manager must consider in
executing his/her role in PFM.
• Recognise the different instruments that the South African public has to
interrogate and impact PFM policy, processes and procedures.
• Consider shortfalls in the current approach to PFM and propose appropriate
interventions for consideration.
You will recall that one of the first statements made in the discussion of PFM was
“Management is financial management”, and after all this time there still is no
better statement with which to introduce the discussion of public sector financial
management. Differentiating between what Parliament decrees in its futuristic

93
planning, what the legislature prescribes in each statute gazetted, what the
executive achieves through its bureaucratic processes and the realisation of the
electorates’ expectations is somewhat complex. Although there should be a
golden thread running through the entire process, simply because all elements
are inextricably woven together in one discipline, reality is inclined to provide an
outcome which is fraught with bureaucracy, red tape, political power plays,
nepotism, self-interest, financial impropriety and poor service delivery. It would
therefore not be inappropriate to state that there are elements of PFM wherein
which there is no management at all.
Step back and consider your studies thus far. You are well versed in the fact that
for government to do what government is expected to do it requires long-term
strategic planning which ultimately manifests itself in a financial plan, or more
aptly stated, a budget. This budget is executed to satisfy both the strategic
objectives and operational goals set. Throughout, there is a process of
performance and resource utilisation measurement and ultimately the circle is
completed with the appropriate feedback through the prescribed reports, and
then the process starts all over again.
By now you know that Parliament appropriates the funds through an

appropriation Act and the legislature controls those funds through legislation and
oversight committees. More will be said about that in a minute. It must be added
here that although the electorate has the assurance that the structures and
institutions created will ensure that their best interests are attended to, this is
not their only recourse to sound PFM. It is here that consideration must be given
to the instruments not deliberated thus far. In revisiting the chronology of the
PFM process, consider the diagram below.

94
To date most of the roles and responsibilities have been defined and deliberated
at length. This unit will clarify the scope of parliamentary oversight; provide an
overview of the line functionaries’ responsibilities within the current context of
the public sector official; and then offer an insight into the recourse “the people”
have in determining the frameworks within which the services are meant to be
provided.
5.2 Parliamentary Accountability and Oversight
5.2.1 Introduction
“There can be no democratic system of government without transparency and

accountability. The primary responsibility in this field falls squarely on the
shoulders of Parliament. Through its core oversight function, Parliament holds
the government to account on behalf of the people, ensuring that government
policy and action are both efficient and commensurate with the needs of the
public. Parliamentary oversight is also crucial in checking excesses on the part
of the government. (Yamamoto, 2007:6)
National Treasury (n.d.:8) adds to this discussion by stating: “Accountability is

the hallmark of modern democratic governance. Democracy remains clichéd if
those in power cannot be held accountable in public for their acts or omissions,
for their decisions, their expenditure or policies. Historically, the concept of
accountability was closely linked to accounting in the financial sense. It has,
however, moved far beyond its origins and has become a symbol of good
governance both in the public and private sectors. Accountability refers to
institutionalised practices of giving account of how assigned responsibilities are
carried out.” At the same time, the National Treasury indicates its preference for
Prof. S. Ghutto’s definition of accountability, namely “a social relationship where
an actor (an individual or an agency) feels an obligation to explain and justify his
or her conduct to some significant other (the accountability forum, accountee,
specific person or agency)”.
The Global Organization of Parliamentarians Against Corruption (GOPAC)

accentuates the above position by stating: “Parliamentary oversight is one of the
three core democratic roles of parliamentarians. GOPAC focuses on oversight as
related to financial and operational integrity, rather than broader economic or
social policy. It is the duty of parliamentarians to require the Executive Branch
to follow the rules related to financial operations, and for the government to

95
openly report to Parliament on its exercise of the Executive’s powers and public
resources granted.”
Accountability is fraught with complexity in that it needs to answer the questions

of who is accountable, to whom they are accountable and for what they should
be accountable. This complexity is compounded through the establishment of
equilibrium between those exercising public power and the level of control at
their disposal. The contemporary situation in South Africa is significantly different
in that it is a young democracy coming to terms with the New Public Management
(NPM), while simultaneously attempting to deal with the vestiges of apartheid
and the impact that these attempts have had on energising the economy and its
concomitant activities.
“Parliamentary portfolio committees are engine rooms in legislatures, as their

key role includes ensuring policy objectives are met through effective
implementation by the executive branch and state-owned enterprises (SOEs),
quality oversight and enforced accountability” (Ile & Makiva, 2017:1). In a
layperson’s language, oversight has at its core the prevention of the misuse of
public funds, interrogating questionable and more specifically unconstitutional
practices, and ensuring the compliance with regulatory frameworks, all to ensure
the provision of services and ultimately the achievement of government’s stated
overall objectives. On the side of financial integrity, the following should be
included:
• The periodic assessment of the long-term fiscal framework within which
government exercises its mandate
• The constant evaluation of revenue and expenditure streams
• Statutory and complementary regulations relating to strategic planning,
performance budgeting, debt management, expenditure operations
(including, for example, as related to procurement and the provision of
grants), performance assessment and financial reporting
5.2.2 Oversight and Accountability Model
The discussion that follows is sourced in part from the National Treasury’s
document entitled “Oversight and accountability model – asserting Parliament’s
oversight role in enhancing democracy”. It is available at
http://www.parliament.gov.za/storage/app/media/oversight-reports/ovac-
model.pdf

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5.2.3 Constitutional Precepts Guiding Parliament
Parliament’s strategic vision is to build an effective people’s Parliament that

responds to the needs of the people and is driven by realising a better life for all.
Its mission is to represent and act as a voice of the people in fulfilling Parliament’s
constitutional functions. Parliament therefore develops mechanisms to guide its
work on oversight in the form of an oversight model.
The mandate of Parliament is achieved through passing legislation, overseeing

government action, and facilitating public participation and international
participation. The role of Parliament includes the promotion of the values of
human dignity, equality, non-racialism, non-sexism, the supremacy of the
Constitution, universal adult suffrage and a multi-party system of democratic
government. It upholds citizens’ political rights and the basic values and
principles governing public administration, and oversees the implementation of
constitutional imperatives.
Flowing from the Constitution, the first decade of democracy focused on ensuring
the transformation of South Africa’s legislative landscape. Initially Parliament’s
oversight function received less attention, as the Constitution deals more with
Parliament’s legislative authority than its oversight role.
In giving credence to its increasingly important oversight role, Parliament’s

strategic vision accentuated the manner of engagement and institutionalising
public participation to assure the oversight function. For political delegations to
accept the management of the legislative and oversight programme of
Parliament, capacity, competence and collective action was demanded.
5.2.4 Constitutional Requirement for Mechanisms on Oversight
In the context of sections 42(3) and 55(2)(b) of the Constitution and other
prescriptive legislation, Parliament established a Task Team on Oversight and
Accountability to study the mandates relating to oversight emanating from the
Constitution. The objective was to develop an oversight model for Parliament in
line with the Constitution and Parliament’s new strategic vision. The model’s
primary objective was to provide the framework that describes how Parliament
was to conduct oversight. It sought to improve existing tools of parliamentary
oversight, streamline components of the new oversight model with existing
components and enhance Parliament's capacity to fulfil its oversight function in
line with its new strategic direction. The oversight and accountability model
would therefore comprise the most important features, namely:
• The values and principles by which Parliament was to conduct oversight

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• The mechanism or framework to conduct oversight
• The processes and resources required for conducting oversight
5.2.5 Composition and Mandates of Parliament
Parliament consists of two houses, namely the National Assembly (NA) and the
National Council of Provinces (NCOP).
Section 42(3) of the Constitution provides that the National Assembly be elected
to represent the people and ensure government by the people under the
Constitution. It does this by choosing the president, providing a national forum
for public consideration of issues, passing legislation and scrutinising and
overseeing executive action. The Assembly is further required, in terms of section
55(2), to provide 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.
The National Council of Provinces represents the provinces to ensure that the
provincial interests are taken into account in the national sphere of government
as stated in section 42(4) of the Constitution. The Council does this mainly by
participating in the national legislative process and by providing a national forum
for public consideration of issues affecting the provinces. The Council’s role is to
exercise oversight over the national aspects of provincial and local government.
It contributes to effective government by ensuring that provincial and local
concerns are recognised in national policy and that provincial, local and national
governments work together.
In addition, Parliament:
• Facilitates public participation, involvement and transparency
• Facilitates co-operative government
• Facilitates international participation
• Represents the interests of the people
Based on these mandates, the Constitution further required Parliament to

develop mechanisms for oversight. Several focus groups were established and
they are listed below. The terms of reference for the relevant groups are not
listed here, but may be obtained from the source document.
• Projects focus group (Constitutional Landscape Governing Oversight)
• Committees focus group
• Budget focus group

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5.2.6 Parliament’S Role in Relation to Oversight and Accountability
Oversight
In the South African context, oversight is a constitutionally mandated function of

legislative organs of state to scrutinise and oversee executive action and any
organ of state.
It follows that oversight entails the informal and formal, watchful, strategic and
structured scrutiny exercised by legislatures in respect of the implementation of
laws, the application of the budget and the strict observance of statutes and the
Constitution. In addition, and most importantly, it entails overseeing the effective
management of government departments by individual members of cabinet in
pursuit of improved service delivery for the achievement of a better quality of
life for all citizens. In terms of the provisions of the Constitution and the Joint
Rules, Parliament has power to conduct the oversight of all organs of state,
including those at provincial and local government levels.
The appropriate mechanism for Parliament to conduct the oversight of these

organs of state would be through parliamentary committees. In conducting
oversight, a committee would either request a briefing from the organ of state
or visit the organ of state for fact-finding, depending on the purpose of the
oversight. The committees would have to consider the appropriate means for
conducting oversight to cover all organs of state. One of the most important
aspects of the oversight function is the consideration by committees of annual
reports of organs of state and the Auditor-General’s reports.
Functions of oversight
The concept of oversight contains many aspects, which include political,

administrative, financial, ethical, legal and strategic elements. The functions of
oversight are as follows:
• To detect and prevent abuse, arbitrary behaviour or illegal and
unconstitutional conduct on the part of the government and public agencies.
At the core of this function is the protection of the rights and liberties of
citizens.
• To hold the government to account in respect of how the taxpayers’ money
is used. It detects waste within the machinery of government and public
agencies. Thus, it can improve the efficiency, economy and effectiveness of
government operations.
• To ensure that policies announced by government and authorised by
Parliament are actually delivered. This function includes monitoring the

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achievement of goals set by legislation and the government’s own
programmes.
• To improve the transparency of government operations and enhance public
trust in the government, which is itself a condition of effective policy delivery.
Accountability: Functions of accountability
The functions of accountability include the following:

• To enhance the integrity of public governance in order to safeguard
government against corruption, nepotism, abuse of power and other forms
of inappropriate behaviour.
• As an institutional arrangement, to effect democratic control.
• To improve performance, which will foster institutional learning and service
delivery.
• With regard to transparency, responsiveness and answerability, to assure
public confidence in government and bridge the gap between the governed
and the government and ensure public confidence in government.
• To enable the public to judge the performance of the government by the
government giving account in public.
Notwithstanding the fact that section 55 of the Constitution enables the National
Assembly to maintain oversight over all organs of state and section 92 which
enables Parliament to hold the Cabinet accountable operationally, organs of state
at national level and ministers and their departments are generally held to
account by Parliament. At national level, national departments, national public
entities and national bodies such as commissions are directly accountable to
Parliament.
The National Assembly does, however, have the right to call organs of state at
provincial and local levels to account, but it does not do so operationally unless
there are issues of public importance, national interest and shared competencies.
Holding organs of state at provincial and local levels accountable to Parliament
must be conducted through observance of the Intergovernmental Framework
Relations Act and the principles of co-operative government.
When national departments account to Parliament by means which include the

submission of reports, for example annual reports, Parliament needs to be
informed of the complete picture of the performance of the functions reported
on. The consideration of the annual report of the department alone may not give
the complete picture of the performance of the functions. This is so because
national departments have public entities that are agencies of the
implementation of their functions and their activities may not be reported in the

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annual report of the national department. The annual reports of organs of state
that report to national departments must also be considered when evaluating the
annual report of the national department for Parliament to have a complete
picture of the performance of the functions reported on.
If further accountability is required, committees could use the power provided in

the Constitution to access information even from public bodies at provincial or
local levels in order for the committee to have complete information and details
on the public function reported on. Where a parliamentary committee is
reviewing the performance of a national organ of state, the committee must
ensure that the performance of its other entities, i.e. subsidiaries of the main
organ of state, is included in the report to Parliament. If this is not included in
the report, Parliament should in terms of sections 56(b) and 69(b) of the
Constitution require the entity to report to it so that Parliament has a complete
picture.
In conducting oversight and accountability, the principles of co-operative

government and intergovernmental relations must be taken into consideration,
including the separation of powers and the need for all spheres of government
and all organs of state to exercise their powers and perform their functions in a
manner that does not encroach on the geographical, functional or institutional
integrity of government in another sphere.
The relevant constitutional provisions that refer directly and indirectly to

oversight and accountability are comprehensively tabulated in the source
document.
In the context of the constitutionally mandated provisions of accountability and

oversight, the discussion that follows details the existing processes undertaken
by Parliament to fulfil its constitutional oversight and accountability obligations.
Notwithstanding this discussion, at the time of writing it was accepted that there
are gaps in the current rules pertaining to oversight. No publication is currently
available on how these gaps are being addressed.
5.2.7 Characteristics of Oversight and Accountability and Existing Mechanisms

Utilised by Parliament
Parliamentary committees
Parliament has established mechanisms to fulfil its oversight and accountability

mandates in terms of the Constitution and under the rules established by the two
houses. Committees, for example, can interact with civil-society organisations,

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organised business, experts and professional bodies as a way of enhancing
accountability and can call ministers and departmental heads to account on any
issue relating to any matter over which they are effecting accountability within
the ambit of the provisions of the Constitution and relevant legislation. Current
practices and oversight mechanisms include the committees of Parliament (with
their associated practices) and plenary processes as listed below.
Practices of committees to effect oversight and accountability
The mandates of the committees are provided for in the rules of each house and
the Joint Rules. Committees offer a setting which facilitates detailed scrutiny of
legislation, oversight of government activities and interaction with the public and
external factors. Consideration of committee reports is necessary because
committees work as intermediary bodies between interest groups and
government and are an entry point for citizens to the work of Parliament. In
addition, the work of committees includes study visits that entail physical
inspections, interaction with the public, assessing the impact of service delivery
and developing reports for adoption by committees which contain
recommendations for the houses to consider. In exercising oversight,
committees often obtain first-hand information from people engaged in the direct
implementation of specific programmes and/or who are directly responsible for
service delivery. In order to evaluate the work of government from a broader
perspective, committees may invite experts from outside government to provide
background information on and analysis of relevant issues.
Reports and mandates of committees
Parliamentary committees are established as instruments of the houses in terms

of the Constitution, legislation, the Joint Rules, Rules of the NCOP, Rules of the
NA and resolutions of the houses to facilitate oversight and the monitoring of the
Executive, and for this purpose they are provided with procedural, administrative
and logistical support.
Parliamentary committees have various tools of oversight, including

departmental briefing sessions, annual and departmental budget analyses, calls
for submissions and petitions from the public, the consideration of strategic plans
and annual reports, and public hearings.
While committees have established ways of conducting their oversight functions,

their business generally runs parallel to government’s political cycle, unless there
are specific “ad hoc” oversight functions that are required. In programming their
oversight activities, they would thus act in a responsive/reactive manner.

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A committee conducts its business on behalf of the House and must therefore
report back to the House on matters referred to it for consideration and report.
A committee may also report on any other matter within the scope of its mandate
that it considers necessary.
When a committee reports its recommendations to the House for formal

consideration and the House adopts the committee’s report, it gives the
recommendations the force of a formal House Resolution pursuant to its
constitutional function of conducting oversight. The House then also monitors
executive compliance with these recommendations.
Additional context
Committee reports
The following types of committee reports may be presented to the House:

• Legislation (in terms of sections 74, 75, 76 or 77 of the Constitution)
• Study tours
• Oversight activities of committees, including responses to annual reports and
financial statements of departments
• International agreements
• Private members’ legislative proposals
• Budget votes
• Petitions
• Statutory provisions (for example the filling of vacancies in a statutory body)
• Annual reports of committee activities and performance against their
strategic plans
• Any matter referred to committees for consideration and report in terms of
NA Rule 137 and NCOP Rule 102
Once a report has been adopted by the House, the Speaker communicates the
recommendations of the House to the relevant minister and copies the relevant
House Chairperson, portfolio committee chairperson and Director-General. The
Speaker also requests the Minister to direct his/her responses to the Speaker for
formal tabling.
The Secretary to Parliament communicates with the Director-General in the

Presidency on all resolutions.

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Portfolio committees of the NA and select committees of the NCOP
The mandate of oversight resides with the NA and the NCOP and through their
respective rules, the NA establishes portfolio committees and the NCOP
establishes select committees. Portfolio committees mirror portfolios in
government, whereas select committees mirror the clusters in government.
Owing to the fact that committees conduct their business on behalf of their
respective houses, they report to the relevant house individually and separately
on matters referred to them to ensure that each house may make any decisions
it deems necessary.
Joint committees
Joint committees are committees that are established in terms of the Joint Rules
and have similar powers to portfolio committees and select committees, except
that they have specific mandates relating to transversal issues, such as women,
children, youth and disability.
Joint standing committees

Parliament, in accordance with the Constitution, legislation and the rules, can
establish joint standing committees, for example the Standing Committee on
Intelligence and the Joint Standing Committee on Defence.
Ad hoc committees
When necessary, Parliament establishes ad hoc committees to assist it in its
investigation of transversal issues.
Specialised committees
The NA Rules and the Public Audit Act (Act No. 25 of 2004) establish the
Committee on the Auditor-General with a mandate to maintain oversight over
the Auditor-General and perform functions in terms of the Public Audit Act. The
Joint Committee on Ethics and Members’ Interests is established by the Joint
Rules (Rule 121) to implement the Code of Conduct for Assembly and permanent
Council members and develop standards of ethical conduct for Assembly and
Council members. The Committee on Public Accounts (SCOPA) is established by
the NA Rules (Rule 243) and is tasked with considering financial statements of
all executive organs of state and constitutional institutions, any audit reports
issued on those statements as well as any reports issued by the Auditor-General
on the affairs of any executive organ of state or other public bodies or any other
financial statements or reports referred to the Committee in terms of the rules.

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Additional context
Standing Committee on Public Accounts: National Assembly Rule 243 (Part 13)
Available at:
http://www.parliament.gov.za/storage/app/media/oversight-reports/ovac-
model.pdf
The Standing Committee on Public Accounts consists of the number of Assembly

members that the Speaker may determine with the concurrence of the Rules
Committee, subject to the provisions of Rule 154.
Functions and powers
The Standing Committee on Public Accounts must consider the following:

• The financial statements of all executive organs of state and constitutional
institutions or other public bodies when those statements are submitted to
Parliament, and any audit reports issued on those statements
• Any reports issued by the Auditor‑General on the affairs of any executive
organ of state, constitutional institution or other public body
• Any reports reviewing expenditure of public funds by any executive organ of
state and constitutional institution or other public body
• Any other financial statements or reports referred to the committee in terms
of these rules
The Standing Committee on Public Accounts:

• may report on any of those financial statements or reports to the Assembly
• may initiate any investigation in its area of competence
• must perform any other functions, tasks or duties assigned to it in terms of
the Constitution, legislation, these rules, the Joint Rules or resolutions of the
Assembly, including functions, tasks and duties concerning parliamentary
financial oversight or supervision of executive organs of state, constitutional
institutions or other public bodies
The Speaker must refer the financial statements and reports mentioned above
to the Committee when they are submitted to Parliament, irrespective of whether
they are also referred to another committee.

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Plenary processes affecting oversight and accountability
Budget votes
Budget votes occur when the Minister of Finance announces the budget
projections for the next financial year, as well as the budget votes of each
minister (department). In the budget, the Minister of Finance sets out how much
money the government will spend in the following year, whereafter Parliament
must approve the budget. Subsequent to the presentation of the budget by the
Minister of Finance, the relevant parliamentary committees have hearings with
the relevant departments over which they exercise oversight and they can also
check whether the departments fulfilled their mandate the previous year. The
budget votes are debated in the National Assembly and the National Council of
Provinces once the committees have completed their discussions on the
individual budget votes.
Questions
Section 92 of the Constitution stipulates that members of the Cabinet are
accountable collectively and individually to Parliament for exercising their powers
and performing their functions. The procedure of putting questions to the
Executive is one of the ways in which Parliament holds the Executive to account.
Questions can be put for oral or written reply to the President, the Deputy
President and the cabinet ministers, primarily on matters for which they are
responsible. Question time affords members of Parliament the opportunity to
question members of the Executive on service delivery, policy and other
executive actions on behalf of both their political parties and the electorate.
Members’ statements
This is the process whereby members of Parliament are afforded the opportunity
to make statements on any matter in the House.
Statements by cabinet members

Ministers may make factual or policy statements in relation to government policy,
executive action and other similar matters of which the Assembly should be
informed. A minister asks the Speaker for the opportunity to make such a
statement which should not be longer than 20 minutes.
Notices of motion
Motions are one of the mechanisms available to members of all political parties
and may be used to help fulfil their oversight responsibilities in Parliament by
bringing issues to Parliament for debate. Notice must be given of a motion unless
it is by way of an amendment to a draft resolution, raising a point of order or a
question of privilege, the postponement or discharge of or giving precedence to

106
an order for the day, referring a bill to a committee, the proposal of a draft
resolution on the report of a committee immediately after a debate on the report
has been concluded, or in regard to which notice is dispensed with by the
unanimous concurrence of all the members present. Notice must be given of
every motion since in principle the House must be informed in advance of any
substantive motion so that members and parties have time to prepare for the
debate. Notices of motion are a vital tool to be used by members to bring matters
of political importance before Parliament for debate or a decision.
Motions without notice

Motions which require notice may be moved without notice provided no single
member present objects. It is therefore common practice for parties to be
consulted before the House meets when seeking to move a motion without notice
and to inform the presiding officer of the intention to do so. Motions without
notice are moved when the presiding officer calls for any formal motions, usually
near the beginning of the day’s sitting. This medium allows for consultation
between parties to obtain consensus on issues that must be brought to the
attention of the House.
Plenary debates
Plenary debates are a further means to bring important information to the
attention of the Executive regarding specific government programmes and
legislation required to improve service delivery. In plenary debates, certain
mechanisms for conducting oversight are used. These include question time, the
consideration of committee reports, showcasing, scrutinising and debating the
implementation of policy and budget votes, members’ statements and questions
by members of Parliament. It is another way to draw the attention of the
Executive to the concerns of members’ constituents.
Activities and reports from state institutions supporting constitutional democracy

to enhance Parliament’s oversight functions
These institutions have particular mandates as provided for in the Constitution
and by way of additional Acts of Parliament that prescribe their functions and
powers. The institutions are independent and subject only to the Constitution
and the law, and they must be impartial and must exercise their powers and
perform their functions without fear, favour or prejudice. In terms of section
181(3) of the Constitution, other organs of state, through legislative measures,
have to assist and protect the aforementioned institutions to ensure their
independence, impartiality, dignity and effectiveness.

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In terms of section 181(5), these institutions are accountable to the National
Assembly and must report on their activities and the performance of their
functions to the Assembly at least once a year. The institutions are the following:
• Auditor-General (AG)
• Commission for Gender Equality (CGE)
• Public Protector (PP)
• Electoral Commission (EC)
• South African Human Rights Commission (SAHRC)
• Commission for the Promotion and Protection of the Rights of Cultural,
Religious and Linguistic Communities (CRL Rights Commission)
Additional research
Students wishing to apprise themselves of the full extent of the parliamentary

oversight committees will find them listed at
https://www.parliament.gov.za/committees.
Other statutory institutions supporting democracy
Financial and Fiscal Commission (FFC)

The FFC is an advisory body and has a mandate to make recommendations on
financial and fiscal matters to Parliament, the provincial legislatures and any
other institutions of government when necessary. The FFC is separate from
government and is therefore able to perform impartial checks and balances
between the three levels of government. It facilitates co-operative government
on intergovernmental fiscal matters. At least ten months before the start of each
financial year, the Commission must submit recommendations for that financial
year to both houses of Parliament and the provincial legislatures, with particular
regard to the following:
• An equitable division of revenue collected nationally among the national,
provincial and local spheres of government
• The determination of the equitable share of each province when revenue is
divided between the nine provinces
• Any other allocations to provinces, local government or municipalities from
the national government’s share of that revenue, and any conditions on
which those allocations should be made
National Youth Commission (NYC)

The National Youth Commission is a statutory body of government established
through the National Youth Commission Act, Act No. 19 of 1996. The Commission
consists of five full-time members, five part-time members and nine

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commissioners, nominated by the premiers of the nine provinces and appointed
at national level. The National Youth Policy has been designed to address the
major needs, challenges and opportunities of young men and women.
Pan South African Language Board (PANSALB)

The purpose of the Pan South African Language Board is to promote
multilingualism in South Africa as follows:
• Creating the conditions for the development and equal use of all official
languages.
• Fostering respect for and encouraging the use of other languages in the
country.
• Encouraging the best use of the country’s linguistic resources to enable
South Africans to free themselves from all forms of linguistic discrimination,
domination and division, and enable them to exercise appropriate linguistic
choices for their own well-being, as well as for national development.
Public Service Commission (PSC)

The PSC derives its mandate from sections 195 and 196 of the Constitution. The
PSC is tasked and empowered, among other things, to investigate, monitor and
evaluate the organisation and administration of the public service. This mandate
also entails the evaluation of achievements, or lack thereof, of government
programmes. The PSC also has an obligation to promote measures that will
ensure effective and efficient performance within the public service and to
promote basic values and principles of public administration, as set out in the
Constitution, throughout the public service.
Independent Communications Authority of South Africa (ICASA)

The Independent Communications Authority of South Africa derives its mandate
from several statutes: The Independent Communications Authority of South
Africa Act of 2005, the Independent Broadcasting Authority Act (IBA), the
Broadcasting Act, the South African Telecommunications Regulatory Authority
Act and the ICASA Amendment Act. The Electronic Communications Act
substantially amended the IBA Act of 1993 and the Broadcasting Act of 1999.
The Authority regulates the telecommunications and broadcasting industries in
the public interest. Its key functions are as follows:
• Making regulations and policies that govern broadcasting and
telecommunications
• Issuing licences to providers of telecommunications services and
broadcasters
• Monitoring the environment and enforcing compliance with rules, regulations
and policies

109
• Hearing and deciding on disputes and complaints brought by industry or
members of the public against licensees
• Planning, controlling and managing the frequency spectrum
• Protecting consumers from unfair business practices, poor-quality services
and harmful or inferior products
Organs of state
An “organ of state” is defined in section 239 of the Constitution as –

• any department of state or administration in the national, provincial or local
sphere of government; or
• any other functionary or institution
o exercising a power or performing a function in terms of the Constitution
or a provincial constitution; or
o exercising a public power or performing a public function in terms of any
legislation, but does not include a court or a judicial officer.
Section 239 divides organs of state essentially into two categories. The first
category is descriptive in terms of which organs of state are defined as any
department of state or administration in the national, provincial or local sphere
of government. It includes bodies represented in Cabinet as comprising “national
executive authority”, where accountability is vested at the political level via the
doctrine of ministerial responsibility (section 92(2)). The inclusion of the term
“local” in this category in section 239 must also logically include municipalities,
as they constitute administrative bodies operating in the local sphere of
government. The second category in section 239 is subdivided and focuses on
the conduct or activity of the organ of state and on the empowering provisions.
The two subcategories are:
• Section 239(b)(i): any other functionary or institution exercising a power or
performing a function in terms of the Constitution or any provincial
constitution
• Section 239(b)(ii): any other functionary or institution exercising a public
power or performing a public function in terms of any legislation, but does
not include a court or a judicial officer
If the institution or functionary is exercising a power or performing a function in

terms of the Constitution or a provincial constitution, then it is an organ of state.
The nature of the power exercised or the function performed is irrelevant. In this
category, the source of the power is the determining criterion.
All organs of state in the national sphere of government must account to the
National Assembly and they do this mainly by way of the submission of annual

110
reports. As per section 55(2)(b)(ii), the Assembly has power to conduct oversight
over all organs of state.
5.2.8 Tools for Oversight and Accountability
Currently South Africa has designed the following tools in relation to oversight
and accountability. For ease of reference, these tools have been split into four
categories:
Category 1 Category 2 Category 3 Category 4

Tools of Tools relating to Financial Issues arising
established annual, monthly and instruments from institutions
legislation and weekly activities supporting
long-term plans constitutional
democracy
• Constitution of • State-of-the- • Budget Speech • Reports on
the Republic Nation Address o Estimates of investigated
• Legislation • Questions (written National matters of
• Government and oral) Expenditure relevance by
Programme of • Members’ (ENE) institutions
Action [5-year statements o Division of supporting
plan] • Ministerial Revenue Bill constitutional
statements o Estimates of democracy
• Debates in the National (ISDs) and
House Revenue other
• Matters from • Budget Review statutory
constituency work • Ministers’ institutions
• Private members’ budget vote supporting
bills speeches democracy for
• Individual • Departmental consideration
members’ budget votes by Parliament
oversight • Treasury
• Committee Regulations
reports on relating to
legislation and strategic
oversight planning
activities • Reports of the
• Committee Auditor-General
reports on (including
international performance
agreements reports)

111
• Departmental • Treasury
strategic plans reports
• Departmental (monthly and
current and past quarterly
annual reports)
performance plans • Audit reports
• Annual reports (SCOPA)
(including annual • Medium-Term
financial Budget Policy
statements, Statement
statements on (MTBPS)
programme o Adjusted
performance and Estimates of
human resource National
information) Expenditure
• Performance o Intergovern-
contracts mental Fiscal
• Departmental Relations
compliance with report
parliamentary o Public Finance
committee Management
recommendations Act (PFMA)
• Financial
statements
(monthly
financial reports
• Quarterly
performance
reports)
• Statistics South
Africa reports
Additional context
SCOPA unbundled
The Standing Committee on Public Accounts (SCOPA) is a parliamentary

committee employed by the National Assembly to be its overseer, more akin to
a watchdog, on the utilisation by the Executive of the proceeds of the national
purse. As required by the PFMA, the Auditor-General is annually required to table
performance and financial reports to Parliament on the accounts of all

112
government institutions. Directors General and/or Accounting
Officers/Authorities are often called upon to account to SCOPA regarding the
findings within the aforementioned reports. SCOPA is then expected to provide
the National Assembly with recommendations, as appropriate, regarding the
findings emanating from the hearings and ensuing discussions. The following
issues are invariably covered in some way or another during the hearings:
• The availability and appointment of financially astute financial personnel
• The necessity of implementing and maintaining effective internal controls
• The interventions required to ensure the curtailment of improper and
inappropriate expenditure, inclusive of fraud and corruption
• The implementation and maintenance of the prescribed systems supporting
goal-achievement and expenditure control, complete with monitoring and
reporting
• The establishment and maintenance of an internal audit component and
committee
• A reporting system which periodically and when necessary (ad hoc) provides
reports to the administrative and line management, the executive authority
and all the relevant external stakeholders
• The interventions by management regarding the recommendations
stemming from both previous audit reports and the SCOPA
5.2.9 The Parliamentary Oversight Cycle as a Guide for Oversight Processes
Parliamentary processes to ensure that institutional mechanisms are effectively

undertaken are prescribed within the parliamentary oversight cycle. The
parliamentary oversight cycle takes cognisance of the Medium-Term Expenditure
Framework cycle of the Executive, the Medium-Term Budget Policy Statement,
the Division of Revenue Act, the annual Appropriation Bill and legislation raising
revenue.
Annual reports, reports from the Auditor-General, resolutions of the Committee

on Public Accounts, committee reports and quarterly and monthly reports of
National Treasury are considered during the cycle and performance by the
Executive is measured by a comparison between these and the Medium-Term
Budget Policy Statement, the Division of Revenue Act, the Appropriation Bill and
legislation raising revenue. Ministers are accountable for the policy that underlies
their budgets, whereas accounting officers account for expending the budget.
The oversight cycle requires Parliament to take a long-term view of oversight in

order to ensure effective oversight of sustainable delivery. The parliamentary
oversight cycle provides a means through which Parliament can monitor

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government delivery in terms of long-term commitments, rather than focusing
exclusively on annual commitments, annual planning and performance
assessments. The cycle thus provides for continuity in Parliament’s oversight
activities from one year to another.
5.2.10 In Summary
The true test of a democracy is considered to be the extent to which Parliament

can ensure that government remains accountable to the people by maintaining
oversight over government’s actions. Whether Parliament is indeed successful in
effectively holding the Executive accountable will ultimately depend on the extent
to which committees and individual members of Parliament actively exercise their
oversight role. While an appropriate legal framework and adequate resources
constitute critical elements for effective parliamentary oversight and
accountability, it is equally important that individual members, as well as
members of the Executive, understand the rationale for accountable government
and the purpose it serves. Effective oversight requires the political will on the
part of the individual members of Parliament to optimally utilise the oversight
mechanisms and the array of tools at their disposal.
5.3 The Line Manager
5.3.1 Introduction
The role of the line manager in ensuring the delivery of the required services
amidst a myriad dynamics must not be understated. The line manager is required
to prepare and execute the plan within the ambit of limited resources. A lack of
understanding of how these resources are acquired, allocated, utilised and
reported on complicates the service delivery in no small way. The manager
allocated the task of bringing the plan to life must consider the impact of all
decisions on the availability of resources. To achieve this, the line manager must
be conversant with and participate in the framework within which the resources
are acquired, as well as the accountability and accounting arrangements. It must
be noted that every decision made is either founded on a projection or a pre-
positioned circumstance and once made, influences the intermediate or ultimate
outcome. The finance manager, irrespective of level, primarily serves as an
enabler for the provision of the services and is not empowered or mandated to
direct the process of the provision of those services. This latter task falls to the
line manager. The two are inextricably bound together in ensuring that the
services are provided within the context of all-encompassing public
administration and sound public financial management.

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5.3.2 The Roles of Line/Operational and Financial Managers
In traditional budgeting systems, financial managers frequently play the central

role in the allocation of financial resources. Financial decisions are often made
without being aware of whether these resources are spent in an efficient and
effective manner. Similarly, operational managers are often uninformed of the
cost of activities that they have planned and implemented.
The separation of strategic planning and policy implementation on the one hand,
and budgeting and accounting for expenditure of financial resources on the other,
reduces the ability of government to deliver services efficiently and effectively to
communities.
Successful integration of strategic plans and budgets requires that operational or

line managers be held accountable for the inputs that are allocated to resource
their strategic plans. Better budgeting, in terms of the PFMA, extends
accountability not only to expenditure on inputs, but, more importantly, to the
efficient and effective achievement of outputs in line with strategic priorities.
“Letting managers manage” therefore entails considerable changes to the

customary functions and responsibilities of public sector financial and operational
managers, as illustrated below.
Table 5.1 Roles of Line/Operational and Financial Managers
FINANCIAL MANAGERS LINE/OPERATIONAL

MANAGERS
Accountability Provide financial information Manage the objectives and
that assists the operational activities that lead to the
manager with the institution’s outputs. Ensure
implementation of policies. that the resources made
available are used effectively,
efficiently and economically
in the achievement of the
objectives.
Costing Promote costing systems and Responsible for key
skills in order to support the decisions that relate to
operational manager. costing, such as the type
and quality of service to be
provided.

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Prioritise spending within the
allocation provided.
Monitoring Support operational Monitor and evaluate
and managers in monitoring and performance and
evaluation evaluating expenditure in expenditure
relation to budgets and (simultaneously) in relation
objectives. to budgets and objectives.
Monitor and interpret
outputs and outcomes of
service delivery.
Establish interventions in
accordance with the results
of the evaluation.
Revenue and Link revenue and Make corrective
expenditure expenditure to programme management decisions
objectives and the overall where financial information
output of the institution. reveals possible deviation in
Recommend remedial actions expenditure, projections
where appropriate. and plans.
Reprioritise as appropriate.
Cash flow Manage and monitor cash Advise on milestones
flow and procurement. achievement.
Consider the reallocation of Provide information on
funds where appropriate. cash-flow implications of
programme and projects.
Consider possible rollovers.
Reports Prepare prescribed reports Prepare prescribed reports
for all of the above. for all of the above.
5.3.3 The PFMA on Line Managers (Other Officials)
The aim of the PFMA is to regulate financial management in the national

government and provincial governments; ensure that all revenue, expenditure,
assets and liabilities of those governments are managed economically, efficiently
and effectively; provide for the responsibilities of persons entrusted with financial
management in those governments; and provide for matters connected
therewith.

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Additional context
PFMA-defined institutions and officials are listed below:
“accounting officer” means a person mentioned in section 36;
“accounting authority” means a body or person mentioned in section 49;
“Accounting means the board established in terms of section
Standards Board” 87
“department” means a national or provincial department or a
national or provincial government component
“executive authority” • in relation to a national department, means the
Cabinet member who is accountable to
Parliament for that department;
• in relation to a provincial department, means
the member of the Executive Council of a
province who is accountable to the provincial
legislature for that department;
• in relation to a national public entity, means the
Cabinet member who is accountable to
Parliament for that public entity or in whose
portfolio it falls; and
• in relation to a provincial public entity, means
the member of the provincial Executive Council
who is accountable to the provincial legislature
for that public entity or in whose portfolio it
falls;
“MEC for finance” means the member of an Executive Council of a
province responsible for finance in the province
“Minister” means the Minister of Finance
“national department” means a department listed in Schedule 1 to the
Public Service Act, 1994
“national government means an entity which
business enterprise” • is a juristic person under the ownership control
of the national executive;
• has been assigned financial and operational
authority to carry on a business activity;
• as its principal business, provides goods or
services in accordance with ordinary business
principles; and
• is financed fully or substantially from sources
other than the National Revenue Fund: or by
way of a tax, levy or other statutory money;

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“national government means a national government component listed in
component” Part A of Schedule 3 to the Public Service Act,
1994
“national public means
entity” • a national government business enterprise; or
• a board, commission, company, corporation,
fund or other entity (other than a national
government business enterprise) which is
o established in terms of national legislation;
o fully or substantially funded either from the
National Revenue Fund, or by way of a tax,
levy or other money imposed in terms of
national legislation; and
o accountable to Parliament.
“National Treasury” means the National Treasury established by section
5 “provincial department” means
• the Office of a Premier listed in Schedule 1 to
the Public Service Act, 1994;
• a provincial department listed in Schedule 2 to
the Public Service Act, 1994
“provincial means an entity which
government business • is a juristic person under the ownership control
enterprise” of a provincial executive;
• has been assigned financial and operational
authority to carry on a business activity;
• as its principal business, provides goods or
services in accordance with ordinary business
principles; and
• is financed fully or substantially from sources
other than
o a Provincial Revenue Fund; or
o by way of a tax, levy or other statutory
money;
5.3.4 Responsibilities of Other Officials
It is significant that in our general definition of PFM we accept that it is

synonymous with financial management. That the two are mutually inclusive is
unambiguous, yet the list of “managers” above does not mention the line
manager. One may accept, therefore, that when the PFMA addresses other
officials in section 45 it is addressing everybody outside of those defined above
and by logical deduction that would include line officials. The section is quoted

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below to direct the attention of the line officials in terms of their responsibilities
regarding financial management.
“An official in a department, trading entity or constitutional institution:

• must ensure that the system of financial management and internal control
established for that department, trading entity or constitutional institution is
carried out within the area of responsibility of that official;
• is responsible for the effective, efficient, economical and transparent use of
financial and other resources within that official’s area of responsibility;
• must take effective and appropriate steps to prevent, within that official’s
area of responsibility, any unauthorised expenditure, irregular expenditure
and fruitless and wasteful expenditure and any under-collection of revenue
due;
• must comply with the provisions of this Act to the extent applicable to that
official, including any delegations and instructions in terms of section 44;
and
• is responsible for the management, including the safeguarding, of the assets
and the management of the liabilities within that official’s area of
responsibility.”
It is noteworthy that the area of responsibility is clearly demarcated in each of

the subsections. It is either within the area of responsibility of that official or to
the extent applicable to that official. The former is easy to determine and will be
discussed shortly. The second is a little more complex, where the determinants
will be to what extent the official has “delegated powers” or has been “allocated
tasks” as prescribed in section 44 of the PFMA. These delegations will need to be
included in the official’s performance agreement or job description to carry any
credence. This discussion is elaborated below.
Table 5.2 PFMA-Allocated Responsibilities for Other Officials Explained
Required Prescribed
System of financial PFMA section 38(a):
management and Systems:
internal control • Financial and risk management and internal
control
• Internal audit
• Procurement and provisioning
Properly evaluate all major capital projects.
Effective, efficient, Economy suggests the lowest possible cost.
economical and Efficiency is about using the least input to
transparent use of achieve a required output.

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financial and other Effectiveness is doing the right thing right.
resources
Prevent any unauthorised Unauthorised expenditure: (a) overspending of a
expenditure, irregular vote or a main division within a vote; or (b)
expenditure and fruitless expenditure not in accordance with the purpose
and wasteful expenditure of a vote or, in the case of a main division, not in
and any under-collection accordance with the purpose of the main
of revenue due division.
Irregular expenditure: expenditure, other than
unauthorised expenditure, incurred in
contravention of or that is not in accordance with
a requirement of any applicable legislation.
Fruitless and wasteful expenditure: expenditure
which was made in vain and would have been
avoided had reasonable care been exercised.
The extent applicable to The following are included but not limited to:
that official • PFMA section 39: Budgetary control (alongside
performance management)
• PFMA section 40: Reporting as prescribed
• PFMA section 83: Financial misconduct
• Treasury Regulations section 5: Strategic
planning
It is expected that the Accounting Officer will delegate financial matters to the
Chief Financial Officer (CFO). The key role of the CFO is to combine timely,
materially accurate, relevant, complete and suitably presented financial results
and trends with interpretative professional advice.
5.3.5 Interaction Between Finance and Line Officials
Meeting this challenge requires the CFO to do the following:

• Maintain close liaison with the Accounting Officer and all line/ operational
managers, advising them on all the financial facets that impact on the
achievement of the stated objectives.
• Establish and maintain an infrastructure that is able to respond to the
changing needs for accurate and up-to-date financial information and advice.
• Actively participate in all levels of the strategic planning process and ensure
that all the financial requirements, inclusive of not exceeding the allocation,
are attended to.

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• Establish a departmental budget advisory committee and in consultation with
the line/operational managers assess both the future requirements and the
in-year execution of the plan and budget.
• Undertake output and service costing tasks.
• Under the guidance of the Accounting Officer and in consultation with the
line/operational managers and Auditor-General prepare and submit the
prescribed reports.
The responsibilities set out above give effect to enhanced accountability of line/
operational managers and the achievement of outputs as set out in the PFMA.
Furthermore, the PFMA compels financial managers and line/operational
managers into a closer engagement to secure sound PFM within the management
team. This is particularly true in the integrated planning and budgeting process
and calls for financial and line managers to work more closely together, sharing
critical information and feedback in a way that they inform and link the policies,
budgets and activities of the department to the required outputs and eventual
outcomes.
5.3.6 Considering Legacies
South Africa can pride itself on the fact that it probably has one of the most
progressive PFM frameworks available. The government has and continues to
subscribe to the more essential international treatises to ensure best practices
in all its public sector disciplines, not least of which is public sector financial
management. The approach not only ensures that the framework is established,
but also ensures success at every level. To guarantee the efficiency and
effectiveness of PFM, irrespective of whether it pertains to line or staff officials,
consideration must be given to circumstances where legacies of one kind or
another impact the outcome. What follows is a broad discussion and for the
ardent student creates a foundation for a more detailed investigation.
South Africa established its PFM reforms in 1999 with the promulgation of the
PFMA. This piece of legislation was followed by the introduction of the Treasury
Regulations which were amended in 2011. Other legislation followed, among
which the Preferential Procurement Policy Framework Act, Act No. 5 of 2000 with
its regulations featuring prominently.
When considering PFM reforms, it is generally accepted that countries that have
external support in introducing them seem to fare better than those who do not.
It is, however, also true that domestic revenue performance in such cases seem
to do less well. “Standard assumptions about state building suggest that stronger
expenditure management systems emerge where domestic revenue collection is

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the primary source of public funds” (Moore, 2004). External support, although
helpful for entrenching PFM, is not without challenges.
In either implementing and/or participating in the implementation of PFM reforms

managers must consider the following elements:
• To successfully implement and/or manage the existing PFM, institutional and
capacity legacies must be considered. South Africa is not immune to this
principle and has to consider the legacy it has inherited regarding
proficiency, knowledge and skills. This factor weighs heavily when
attempting to successfully implement advanced PFM and complex
technological systems. Consideration must be given, on the one hand, to the
availability of skilled public sector officials and, on the other hand, to the
availability of mentoring and empowerment opportunities regarding public
sector management and specifically PFM, for both line and finance officials.
This is true for every level of management.
• Capacity substitution (outsourcing/insourcing) is a commonly used approach
where the appropriate skills are unavailable. The problem that arises from
the use of non-civil servants is that an inequity may develop to the point
where the contracted staff outnumbers the in-service employees. The
reliance on the services of external staff becomes difficult to terminate. An
added problem is that there may be a reticence in capability building and the
shift to establishing an in-house capacity. Capacity substitution could be
used, but developing local capacity should be established from the outset.
Knowledge transfer and sustainable public service should be part of an
ongoing strategy.
• The reforms introduced in South Africa moved from a centralised to a
decentralised management approach, affording accounting officers more
latitude within which to exercise their powers. The introduction of the
legislation was accompanied by the regulatory frameworks and technical
policy documents. To convert these into operational day-to-day guidelines
for the layperson requires experiential knowledge and interpretive skills. The
staffing process must therefore ensure the satisfaction of both post and
person profiles to satisfy the requirement.
• Irrespective of whether the PFM reforms and the accompanying systems
required to sustain the management of finances and ultimate service
delivery are advanced or simple, they will not secure any form of success if
they are executed in a lacklustre or self-serving manner. Separation of duties
and functions must be clearly established and monitored on a predetermined
basis. The line officials’ responsibilities are clearly demarcated in the
preceding paragraphs. Commitment at every level is essential to successfully
execute PFM.

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• PFM is not an independent discipline. It is interwoven with every facet of the
institution’s management, making it a part of a multifaceted science
requiring a multidisciplinary approach. The integrative nature of PFM cannot
be understated and line and staff officials have no capacity beyond that
which is executed collectively. By way of example, a weakness in the
procurement system is weakness in PFM. The process commences with
crafting a strategy and terminates with assessing performance and the
utilisation of resources, primarily financial. Line and staff officials are
therefore indistinguishably bound together in assuring that government’s
function is satisfactorily executed.
• Flowing from the previous issue is the need for intensive coordination within
the field of PFM. Where comprehensive systems are being implemented or
executed, there is invariably caution owing to the lack of clearly stated or
ambiguous expectations. This leads to poor management; non-compliance
with timescales and eventually substandard service. Coordinated structures
and systems must be established to focus on key problems and the eventual
execution of both the plan and the budget.
• The design of the accountability mechanisms forms part of the management
package and deserves more than a casual mention, especially where the
outcomes are dependent on the interpretation of language and culture. The
creation of programmes and subprogrammes must be clearly prepared and
linked to key performance indicators, not only for internal reporting, but also
for external benefactors (donors) where appropriate. The importance of
service delivery and the inevitable consequences where services are
provided poorly and inadequately must be fully understood and embraced
by all officials. The line official’s responsibility cannot be sufficiently
underscored in this role, but he/she must be assisted by the finance official
who is more au fait with the treasury prescripts. Sound accountability
ensures sound performance management and ultimately sound reporting,
and for that matter stakeholder consideration and, where appropriate,
participation.
5.3.7 In Summary
It should be evident from the discussion that public financial management covers
a vast range of disciplines and responsibilities. Most of these are technical in
nature and require detailed management knowledge to deal with them in a
meaningful way. The crux of the matter is that line managers or non-financial
managers also need to acquire the knowledge to enable them to fulfil their
legislative responsibilities in terms of the PFMA, Treasury Regulations and other
related legislation. The preceding discussion provides line managers with an
insight into the critical aspects of public financial management. They must be

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enabled with the necessary tools to improve their contribution towards the
achievement of the objectives of the institution well within the allocated funding.
It has been said before, and is reiterated here, all management is financial
management, even if line managers are restricted to their “area of
responsibility”.
5.4 The People
5.4.1 Constitutional Latitude
Section 195 of the Constitution provides for basic values and principles governing
public administration. Among other prescripts, it provides for public
administration that must be governed by the democratic values and principles
enshrined, including the following principles:
• A high standard of professional ethics must be promoted and maintained.
• Efficient, economic and effective use of resources must be promoted.
• Public administration must be development orientated.
• Services must be provided impartially, fairly, equitably and without bias.
• People’s needs must be responded to, and the public must be encouraged to
participate.
• Public administration must be accountable.
• Transparency must be fostered by providing the public with timely,
accessible and accurate information.
In terms of public administration, these facets are enshrined in the Constitution,

but for the purpose of this unit the last three are particularly relevant and, more
specifically, the participation of the people in the process.
In support of this approach, a quotation from Why Nations Fail by Daron

Acemoglu and James A. Robinson. Under the heading “Understanding prosperity
and poverty” they state: “Central to our theory is the link between inclusive
economic and political institutions and prosperity. Inclusive economic institutions
that enforce property rights, create a level playing field, and encourage
investments in new technologies and skills are more conducive to economic
growth than extractive economic institutions that are structured to extract
resources from the many by the few and that fail to protect property rights or
provide incentives for economic activity. Inclusive economic institutions, that is,
those that distribute political power widely in a pluralistic manner and are able
to achieve some amount of political centralisation so as to establish law and
order, the foundations of secure property rights, and an inclusive market
economy.” (Acemoglu & Robinson, 2013:429).

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South Africa is evolving from an extractive position to an inclusive position and
it is therefore not inappropriate to have the people have their say in the very
institutions that are to determine their day-to-day lives.
Currently there are three major avenues for the people to participate in the
parliamentary legislative process and the day-to-day PFM:
• Comment on draft legislation.
• The second is to access the Parliamentary Monitoring Group (PMG) available
at https://pmg.org.za/.
• The third is through the Office of the Public Protector. This is achieved via
the provisions allowed for in the Public Protector Act, Act No. 23 of 1994.
These will be discussed in due course.
• And finally, an array of ombuds’ offices set up specifically to entertain the
concerns and questions of the public at large and more intentionally those
of aggrieved individuals and/or civic organisations.
5.4.2 Comment on Draft Legislation
Comment on impending legislation may be given via the Internet using the
search engine https://www.gov.za/documents/public-comment or simply
accessing it with a Google search using Documents for public comment South
African government. This site provides the latest documents available for public
comment as well as a search facility where visitors may interrogate other issues.
The site also provides links to a host of other government sites. You are
encouraged to visit the site to familiarise yourself with its content.
5.4.3 The Parliamentary Monitoring Group (PMG)
What follows below is taken either directly from the PMG website or its publication
Getting information to the People: The role of the Parliamentary Monitoring
Group. It has been edited in parts to satisfy the function of this topic.
What is the PMG?
The Parliamentary Monitoring Group, an information service, was established in

1995 as a partnership between Black Sash, the Human Rights Committee and
Idasa with the aim of providing a type of Hansard for the proceedings of the
more than fifty South African parliamentary committees for these three advocacy
organisations. This was because there is no official record publicly available of
the committee proceedings – the engine room of Parliament – and this type of
information is needed by social justice organisations to lobby the Parliament of

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South Africa on pieces of legislation, matters of democratic processes and
parliamentary oversight of the executive.
The PMG website was set up at the beginning of 1998 to make the information
generated available to a wider audience. At present, this is the only source for
this type of information. The PMG committee intends for reports and other
documents to provide the public with an insight into the Parliament of South
Africa and its daily activity. Importantly it provides a window into the
performance of each government department and public entity over which each
parliamentary committee has oversight. PMG became a fully fledged independent
NGO in July 2009.
Additional context
For a case study of the PMG, google “Getting information to the People – case
study of PMG” or search for it at https://pmg.org.za/page/what-is-pmg. It will
also provide a comparison of parliamentary monitoring organisations globally.
PMG aims to provide accurate, objective and current information on all

parliamentary committee proceedings in the form of detailed, unofficial minutes
and documents and since 2007, sound recordings of the meeting.
PMG’s key activity is attending all parliamentary committee meetings, where a

monitor will tape and minute the proceedings and obtain all documents tabled in
the committees. Immediately after the meeting, the audio recording is published
on the PMG website. Once a detailed written report has been compiled, it passes
through an editorial and quality control process. It is then published on the PMG
website within three working days of the committee proceedings along with all
the relevant committee documents such as public submissions, working drafts of
bills and briefings on policy and legislation.
Additional context
PMG services
Beyond the reporting of committee proceedings, PMG provides the following:

• Early notification of calls for comment
• Details of public hearings
• Parliamentary programmes
• Legislative programmes for departments

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• Bill Tracker – daily updates
• Ministerial replies to MPs’ written questions
• Research on the functioning of Parliament
• Access to your national, provincial and local representatives on its sister
website, People’s Assembly
PMG is prepared to entertain any enquiries through emails submitted to

info@pmg.org.za.
Currently PMG covers all parliamentary committees (except Intelligence which is

closed to the public) and the PMG website has a record of all meeting proceedings
and other documents between January 1998 and the present. However, certain
committees were not covered prior to 2000.
Calls for comment
PMG encourages public comment on policy, tabled bills, draft bills and
regulations. These calls for public comment are published by departments in the
Government Gazette, a publication that is not accessed by the average citizen.
For this reason, PMG has added this to its list of activities to afford broader
opportunity to all sectors to give comment at a much earlier stage in the
policymaking or law-making process, particularly at a time when the department
is still drafting policy or legislation.
PMG has been attempting to boost a broader civil society input, having noted
that the same bodies tend to make regular representation to Parliament. When
PMG sends out calls for comment, it now also tries to encourage the early sharing
of submissions and reminds its readers that PMG would like to circulate
comments, or at least a short summary of them, to other subscribers. The
intention is to make the process less daunting for subscribers who may not be
well versed in making submissions, but who nonetheless may wish to indicate
their support for, opposition to, or addition to what others may have to say. PMG
still has challenges with this; the time given for submissions is often very short
and most people finalise them only on the deadline date, leaving little time for
PMG to screen and circulate them. It is nonetheless an opportunity for the wider
sharing of ideas.

127
Additional context
Key issues and challenges
If there is widespread agreement on the need to improve public sector efficiency

and effectiveness and the tools to do so are extensively available, why is it so
difficult to get there? Many countries have announced reforms or passed
legislation but face challenges with implementing and integrating them into
budget, managerial and accountability systems. Implementing reforms implies
not only developing their technical aspects but also changing the behaviour and
culture of key actors to induce them to focus on results. These challenges have
been discussed at length elsewhere. Consider the following three issues:
1. Improving performance information (PI)
2. Developing incentive structures to motivate spending ministries and
agencies to improve results:
o Using budgets to motivate performance
o Direct performance budget and performance bonus systems
o Increased or decreased managerial flexibility to motivate performance
o Public naming and shaming
3. Engaging politicians in reforms and motivating them to use PI:
o Engaging politicians in the legislature
o Engaging politicians in the executive branch
(Cangiano et al., 2013:305–313)
5.4.4 The Public Protector
Sections 181–183 of the Constitution provide for the establishment of the office
of the Public Protector. The Public Protector Act, Act No. 23 of 1994 decrees that
the Public Protector has the power, as regulated by national legislation, to
investigate any conduct in state affairs, or in the public administration in any
sphere of government, that is alleged or suspected to be improper or have
resulted in any impropriety or prejudice, to report on that conduct and to take
appropriate remedial action in order to strengthen and support constitutional
democracy in the Republic.
Requests for investigations to the Public Protector must be in writing and may
cover the following issues:
• Maladministration in connection with the affairs of government at any level

128
• Abuse or unjustifiable exercise of power or unfair, capricious, discourteous
or other improper conduct or undue delay by a person performing a public
function
• Improper or dishonest actions or omissions or offences referred to in parts
1 to 4, or section 17, 20 or 21 (insofar as it relates to the aforementioned
offences) of Chapter 2 of the Prevention and Combatting of Corrupt Activities
Act, Act No. 12 of 2004 with respect to public money
Additional context
Prevention and Combatting of Corrupt Activities Act
Part 1: General offence of corruption

Part 2: Offences in respect of corrupt activities relating to specific persons
Part 3: Offences in respect of corrupt activities relating to receiving or offering
unauthorised gratification
Part 4: Offences in respect of corrupt activities relating to specific matters
Section 17: Offence relating to acquisition of private interest in contract,
agreement or investment of public body
Section 20: Accessory to or after offence
Section 21: Attempt, conspiracy and inducing another person to commit an
offence
The Public Protector’s website may be accessed at http://www.pprotect.org/ or

merely through a Google search using “Public Protector”. The site provides an
extensive explanation on how to register a complaint and the way the process
moves the complaint through its various stages. It also provides the latest
investigation reports and current news.
5.4.5 Ombudsmen
Ombudsman defined
• An ombudsman, ombudsperson, ombud, or public advocate is an official
who is charged with representing the interests of the public by
investigating and addressing complaints of maladministration or a violation
of rights.
• Ombudsmen are independent, impartial and provide a free service. They
investigate complaints that haven’t been solved by the organisation
complained against. Ombudsmen investigate complaints when something

129
has been handled badly or unfairly, making someone suffer as a result.
This is sometimes called maladministration.
Available from
https://www.google.com/search?q=public+ombudsan&oq=public+ombudsan
&aqs=chrome..69i57j0l5.13369j0j4&sourceid=chrome&ie=UTF-8.
OmbudsmanSA provides the The City of Cape Town, on their site
following definition on its website http://www.capetown.gov.za/depart
available at ments/Ombudsman, explains as
https://www.yambu.co.za/ombudsm follows: We investigate and facilitate
an/: the resolution of public complaints
An Ombudsman is an official against the administration. We
appointed to investigate an render as an independent, impartial,
individual’s complaints against a unbiased, non-prejudicial and
company or an organisation, apolitical ombudsman service which
especially a public authority. Their mainly entails alternative dispute
role is to facilitate informal conflict resolution, alongside advocacy,
resolution by providing advice, relationship management and
suasion and mediation, and to follow communication.
up with actions and referrals. They Our goal is to serve as a catalyst
also act as agents for change of between the administration and its
systemic issues by making customers, and as a neutral third
recommendations for change on party that represents the interests
policies and procedures. They and rights of the City’s customers by
provide a free service to consumers holding civil servants accountable to
who cannot get a satisfactory remedy the people.
from the company or service provider
concerned. They look at both sides of
the story and obtain redress for a
consumer where they are of the view
that the company or provider has not
acted correctly.
Basic principles
All issues raised with an ombudsperson must firstly have been dealt with within
the relevant institution. Complaints and/or questions should be referred to an
ombudsperson only where no resolution could be reached. The following basic
principles generally apply:
• The ombudsperson’s office is an independent office.
• The institution is bound by the decision.

130
• The decisions find their basis in either the law or equity.
The country abounds with ombuds offices and many government institutions
provide access to their procedures and processes via that office. Users have but
to search via Google to determine how a disquiet may be resolved.
Additional context
Best practices for local government regarding decision making and planning
Government’s primary responsibility is to provide services and as the bulk of

these services are provided via the local authorities, it is deemed appropriate
to include extracts from a document prepared by Pong Leung of the Natural
Step Canada entitled “Best practices scan of sustainability. Decision-making
and planning for the municipal sector”.
The document offers an insight into what may be deemed to be best

practices for integrating sustainability into decision making and governance.
The practices are meant to supply a semblance of guidance in a sequential
manner, but must not be seen as a process.
Addressing leadership Best Practice #1: Create a shared understanding of
buy-in and the sustainability that can be integrated into the long-
elements required to term goals of the community.
successfully integrate Best Practice #2: Establish sustainability as a
sustainability into corporate strategic priority, meaning that it is a
governance systems priority of the Council and signalling that all
departmental business plans need to reflect how
they address it.
Best Practice #3: Constantly and persistently
communicate the sustainability need, vision,
strategies, priorities, etc.
Best Practice #4: Establish the sustainability
initiative within a part of the organisation that has
credibility with the rest of the organisation to lead it,
so the sustainability initiative is not seen as “one
department telling another what to do”.
Engaging the Best Practice #5: Conduct a corporate-wide
remainder of the sustainability analysis to identify key priorities and
institution in cross-cutting themes that act as a focus for multi-
endeavours ensuring departmental initiatives.
sustainability and

131
integration into the Best Practice #6: Establish teams consisting of
governance people across the organisation and from different
framework levels of management to support the analysis and its
implementation.
Best Practice #7: Establish a sustainability training
programme to help people understand what
sustainability is, why it is important and how to
integrate it into their work.
Best Practice #8: Integrate sustainability into
policies and procedures so that sustainability
becomes “the way things are done”.
Involving the Best Practice #9: Connect with stakeholders outside
community and of the municipality to create a critical mass of people
enabling ongoing engaged in sustainability.
education and Best Practice #10: Report on progress and learn
empowerment from the journey.
The detail of the above elements (and more) is available at
www.thenaturalstep.org/en/canada/applying-framework (Choose: [PDF] Best
practices scan of sustainability decision-making and planning.)
5.5 Conclusion
By now you would have recognised that you have covered the major components
of PFM and the accountability that ensures its efficient and effective
consequence. Your study started with “Management is financial management”
and navigated through every aspect providing the credence that establishes the
statement as an axiom.
In this final unit you looked extensively at the oversight role that Parliament
plays, paying attention to more than the oversight committees, namely
institutions supporting democracy. Through the oversight process, Parliament
has created the space where its members, the representatives of the electorate,
inclusive of the suppliers of the resources, namely taxpayers, accept
accountability for ensuring the realisation of the constitutional imperatives and
the consequential strategic obligations which flow directly from them. Secondly,
you refreshed your memory on the PFMA accountability systems required and
how they impact the role of the line/operational manager. At this stage you
should be sufficiently equipped to be able to relate theory to practice and provide
examples that could serve as a basis for further interrogation and improvement.
The topic was concluded by the often-overlooked role that “the people” can and
should play in the establishment of sound PFM. Sadly, the technology-astute

132
levels within the country are inadequate for many to navigate their way through
the Internet to access any of the sites. Government has provided such
opportunities, as has the Parliamentary Monitoring Group, but alas, the
technology to exploit those opportunities is not always readily available.
The final word on the subject must surely be the one that says that systems are
merely tools. They may have all the attributes required to satisfy any and every
eventuality, but are useless when placed in the hands of an unwilling,
uncooperative and/or unskilled operator. Culture and attitude cannot be
discounted in the process and the framework serves no purpose where there is
not an integrated approach. If PFM is to reach its apex, it is to be embraced from
the smallest and the least to the greatest and most powerful. In this regard it is
hoped that this study experience has shown that everybody in South Africa is
responsible for public financial management.

133
5.1. Produce an argument for parliamentary oversight. (25 marks)

5.2. Explain Parliament’s role in relation to oversight and accountability. (10
marks)
5.3. Explain the mechanisms used by Parliament in relation to oversight and
accountability. (25 marks)
5.4. Describe the plenary processes affecting oversight and accountability.
(briefly: 10 marks; comprehensively: 25 marks)
5.5. Identify and describe the oversight role regarding PFM from a
parliamentary perspective. (20 marks)
5.6. Explain the importance of the line/operational manager in PFM, while
simultaneously identifying the customary functions of PFM and how they
should be unbundled between the financial and line managers. (25 marks)
5.7. Restate the PFMA expectation of the line manager. (briefly: 10 marks;
comprehensively: 25 marks)
5.8. South Africa currently still contends with many legacies influencing its
PFM. Explain these legacies and how they may be addressed. To secure
all the marks available, provide some of your own interpretation and not
only what the study guide offers. (25 marks)
5.9. Write an essay explaining how PFM is performed in your area of
responsibility. Provide the criteria against which you are assessing the
management and include the roles of both the line and finance officials.
5.10. Explain how government has facilitated the inclusion of the electorate in
the crafting of new legislation. (10 marks)
5.11. Explain how the Parliamentary Monitoring Group can enable the public to
be involved in PFM. (20 marks)
5.12. Write an article in which you indicate why the National Treasury
should/should not have an ombudsperson. (15 marks)
5.13. In their article entitled “Factors hindering public financial management
and accountability in South Africa”, Tsheletsane and Fourie (2014) include
a discussion on the appointment of accounting officers. Explain how the
turnover of accounting officers impacts the line officials in the execution
of their financial management responsibilities. (15 marks)

134
Abbreviations
CBA Central Budget Authority

CBO Congressional Budget Office (United States)
CEMAC Central African Economic and Monetary Community
CFI Central Fiscal Institution
CMU Cash Management Unit
CPIA Country Policy and Institutional Assessment
DMO Debt Management Office
DSE Department of State Expenditure
ECCU Eastern Caribbean Currency Union
EITI Extractive Industries Transparency Initiative
EU European Union
FMIS Financial management information system
FRL Fiscal Responsibility Law
G-8 Group of Eight advanced economies
G-20 Group of Twenty advanced economies
GAAP Generally accepted accounting principles
GDP Gross domestic product
GFS Government Finance Statistics
GFSM Government Finance Statistics Manual
HIPC Heavily indebted poor countries
IF International financial institution
IMF International Monetary Fund
IPSAS International Public Sector Accounting Standards
IT Information technology
MTBF Medium-term Budget Framework
MTDS Medium-term Debt Management Strategy
MTEF Medium Term Expenditure Framework
MTFF Medium-term Fiscal Framework
NCoA National Commission of Audit (Australia)
NDP National Development Plan
NPM New public management
OECD Organisation for Economic Co-operation and Development

135
PB Performance budgeting
PEFA Public Expenditure and Financial Accountability
PER Public Expenditure Reviews
PFM Public financial management
PFMA Public Financial Management Act, Act No. 1 of 1999
PI Performance information
PIP Public investment programme
PPP Public-private partnership
ROSC Report on the Observance of Standards and Codes
RRA Resource revenue account
SGP Stability and Growth Pact
SOE State-owned enterprise
T-bill Treasury bill
TSA Treasury single account
UN United Nations
VAR Value at risk
WAEMU West African Economic and Monetary Union

136
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144

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Public Sector Financial Management IV

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©STADIO Assignment – 2024 Semester 1 PFB400 Public Sector Financial Management IV

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The focus of financial accounting is on the recording of financial transactions. To a large

©STADIO Assignment – 2024 Semester 1 PFB400 Public Sector Financial Management IV

Heading Page number

MODULE PURPOSE AND OUTCOMES 1

Topic 1 Public Financial Management (PFM) in Context 4

Topic 2 South African Public Sector Financial Management Reform 16

Topic 3 Legal Frameworks Supporting Public Financial Management 32

Topic 4 Public Sector Accounting and Reporting 47

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Topic 5 Oversight and Control by Parliamentarians and Other Non-Financial

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Table Page number

Table 5.1 Roles of Line/Operational and Financial Managers 115

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Welcome back to Public Sector Financial Management. It is most encouraging to

Module Purpose and Outcomes

1. Distinguish between different financial management elements and models.

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Note, however, that it may be difficult and time-consuming, and will