In-Year Financial Monitoring

1. In-Year Financial Monitoring Briefing provided by the National Treasury for the Joint Budget Committee October 12, 2007

2. Outline • Year-to-Date Expenditure Trends (9:00-10:00) • Consolidated • National • Provinces (including conditional grants) • Analyzing In-Year Monitoring Reports (10:00-13:00) • Background, Legal Requirements and IYM Processes • Section 32 Monthly National Report • Projected Cashflow and Expenditures Report • National Programme & Economic Classification Quarterly Report (new) • Section 32 Quarterly Provincial Budgets and Expenditure Report • Overview: Provincial Quarterly Performance Process • Vulindlela

3. YTD Consolidated Expenditure • The ENE budget for FY 2007-08 totals R533.9 billion of which: • Current = R90 billion • Transfers & subsidies = R202.6 billion • Capital = R6.6 billion • Direct charges = R231.7 billion (mostly equitable share) • Contingency = R3 billion • Year to date (April - Aug or 41.6%) expenditures total R218.1 billion of which: YTD • Current = R32.4 billion 36% • Transfers & subsidies = R85.9 billion 42% • Capital = R1.6 billion 24% • Direct charges = R98.3 billion 42% Total 41.3%

4. Provincial Budgets and Expenditure as at 31 August 2007 • The presentation covers provincial spending for the first five months of 2007/08 (as at 31 August 2007) • Based on IYM Models submitted by PTs by 22 Sep 2007 • In aggregate, provincial spending is on track with 38,1% or R80,3bn spent of their budgets • Provinces projecting to overspend by R2,3bn • Should be viewed against anticipated roll-overs • Multi-term agreement on ICS • Spending on conditional grants (CGs) is generally lower at 30,7% against CGs budget

5. IYM Background • Sparked by 1997/98 financial crisis in provinces • Provinces overspent by R5,8 billion in aggregate • Monitoring system (EWS) approved by Cabinet • Change in the Budget Process • IYM to constitute: • Expenditure management • Revenue management • Cash flow management • Movements in bank balances • Suspense accounts • Legal Requirements • Section 32 of PFMA • Publishing reports on state of budgets • Section 40(4) of PFMA - formats • Sections 12 and 31(5) of the Division of Revenue Act, 2007 (CGs) • Acts require monthly expenditure and revenue reporting to the provincial treasuries and National Treasury • Circular issued with regard to submission dates

6. In-year Management, Monitoring and Reporting • Accountability Cycle: • Strategic and Performance Plans/Annual Performance Plans • Budget • In-year monitoring (IYM) (Inform SP targets) • Quarterly Performance Reports • Annual Reports • Purpose: • Focus on performance against budget • Alert managers where remedial action is required • Reports serve as management tool • Feed the Budget Process • Feed into publications such as the Annual Intergovernmental Fiscal Review • Political level to make decisions

7. Monthly Reporting Process • Accounting officer must submit reports to relevant treasuries and executive authorities within 15 days of the end of each month • To improve accountability, AOs are required to sign-off on the monthly reports before submitting to relevant treasury or executive authority • Contents of reports – legal requirement (S40): • Actual revenue and expenditure • Projections for remainder of financial year • Information on conditional grants • Any material variances • Format determined by the National Treasury in terms of PFMA and annual DoRA • Revised annually

8. What is the Section 32 Monthly National Report • Monthly publication by NT • Time periods covered: • Audited outcomes of the previous financial year (2005/06) • Current financial year: 1 month lag (Jan 07 report refers to Dec 06) • Summary table of national revenue, ezpenditure and borrowing • Table 1: Revenue: SCOA compliant, tax (SARS) & dept revenue from Vulindlela (Gov MIS); shows all the tax revenue plus departmental receipts (budgeted vs. actual) • Table 2: Expenditure: per vote, per main econ. classification; budgeted vs. actual, spending to date • Table 3: Revenue fund receipts and direct payments • Table 4: Detailed information on borrowing needs including how the debt gets financed: domestic/ foreign market, loans, bonds (short term or long term) • Table 5: Reconciliation of cash book (where the transactions are captured) and bank accounts (PMG & NRF balances)

9. Purpose and Analysis of Section 32 Monthly National Report • Track the implementation of the Appropriation Act (and after October, the Adjustments Appropriation Act) • Provides a detailed analysis of national government accounts thereby increasing transparency and accountability • Also provides high level “snap shot” view of the link between expenditure, revenue and borrowing • Public document – published in the government gazette. Mainly used by Parliament, financial institutions (SARB, IMF, WB, investors etc.) • Comparison of current month (and year to date) with the same period in the previous financial year wrt: • Exp: by vote and main economic classification • current payments, transfers and subsidies and payment for capital assets • Rev: collection by SCOA categories • Debt: deficit plus extraordinary rev and payments • Financing of the Debt: details by debt instrument

10. Projected Cashflow and Expenditure Report • What is it: Provides a snap-shot of projected cashflow needs and expenditures per vote per month for the fiscal year • Purpose: To assist Parliament to assess departmental planning in relation to cashflow and expenditures for the year • Analysis: Compare projections with actual spending on a monthly or quarterly basis. Also provides an early warning system when departments are either under or over-spending.

11. National Programme & Economic Classification Quarterly Report • What is it: Provides detailed quarterly in-year spending information in a readable format including: • Consolidated • Actual spending compared to budget per vote and year-on-year trends • Actual spending compared to budget per economic classification and year-on-year trends • Accumulated cashflow balances per month • Vote • Programmatic actual spending compared to budget and projected expenditure including variance from projection with reasons from departments for abnormal deviations • Economic classification actual spending compared to budget • Departmental receipts • Cashflow • Departmental cash management information including monthly balances, drawings and expenditure with carry-overs

12. National Programme & Economic Classification Quarterly Report • Purpose: To assist Parliament to scrutinize departmental financial performance more closely and consistently • Analysis: Facilitates various analysis including: • Programmatic spending • Economic classification spending such as: • compensation of employees • goods and services • transfers to provinces • transfers to public entities • infrastructure spending • Departmental receipts • Departmental cashflow management

13. Section 32 Quarterly Provincial Budgets and Expenditure Reports • Reports Generated • Section 32 Publication • Press Release • Technical Committee for Finance (TCF) • Budget Council • President’s Co-ordinating Council (PCC) • Select Committee for Finance • Provincial Quarterly Reports for Joint Budget Committee • Quarterly Section 32 Publication • Press Release/narrative report • Selective tables (dataset)

14. Interpretation of Reports • Current spending trends against projected outcome • Are projections a reasonable reflection of likely expenditure outcomes for the financial year? • Spending on Social Welfare Services (Social Development) at 33,5% - why lower than aggregated average (38,1%), etc?

15. Conditional Grants • CG budgets total R31,5 billion with health making up the bulk of R11,3 billion • Excludes spending on general purpose CGs (Schedule 4 grants) such as the National Tertiary Services and Provincial Infrastructure grants • In terms of 2007 Division of Revenue Act (Section 29(4)(b)) • Total budget, excluding Schedule 4 grants, is R18,0 billion, against spending of 30,7% or R5,8bn • Specific grants that show low rates of spending include: • Community Library Services (7,7%) • HIV and AIDS (Life Skills Education) (19,3%) • Land Care Programme Grant: Poverty (19,9%) • National School Nutrition Programme (23,4%) • Mass Sport and Recreation Participation Programme (27,0%)

16. Conditional GrantsSpending Rates • 5 or more provinces have spent less than 30% of their grant budget for the following grants: • Land Care Programme; • Community Library Services Grant; • HIV and AIDS (Life Skills Education); and • Mass Sport and Recreation Participation Programme • Although the rate of spending is encouraging and reflects an improvement over previous financial years, overall spending still lies below total provincial spending

17. Interpretation of Reports • It should be noted that one cannot necessarily draw meaningful conclusions given the fact that it is relatively early in the financial year • Provinces are projecting to overspent by R2,3 billion • Once anticipated provincial roll-overs, which will be reflected in the provincial adjustments budgets,are taken into account on the budget side, the overall outcome would change • The adjustments budgets are reflected in the 3rd quarter and 4th quarter publications

18. Overview: Provincial Quarterly Performance Process • Outcome assessment of provincial state of implementation of performance management concepts • Managing of Quarterly Performance Reports • Standardising of performance measures for non-service delivery departments • Review of performance measures of service delivery departments • Managing of Quarterly Performance reports 2007/08 • Use an enhanced Excel based database for the gathering of non-financial data per quarter – main objective of enhancement is to improve the quality of data • Aligned submission dates of non-financial data with financial reporting dates to integrated the two sets of data – enhancing budget analysis

19. Vulindlela • What is it: In 1997 National Treasury launched the development of a new management information system known as Vulindlela. The result is a database that consolidates financial information of many different sources including finance, personnel, logistics, procurement and paymaster general systems. • Purpose: Provides a central repository of very detailed spending and budget information going back as far as FY 2001/02 for each vote and provincial department including: • Programme • Subprogramme • Standard Chart of Accounts (SCOA) (e.g., econ. class, element, item, project) • Also provides revenue and asset & liability (i.e., financial statement) information.