FINANCIAL AND FISCAL COMMISSION

FINANCIAL AND FISCAL COMMISSION 2006/2007 ANNUAL REPORT

Table of Contents

Constitutional Mandate Section 220 - An independent and impartial advisory institution within the South African intergovernmental fiscal relations system • Section 214 – The recommendations of the FFC must be considered in the formulation of legislation providing for the equitable division of revenue between the three (3) tiers of government • Section 218 – National legislation relating to provincial and municipal guarantees may only be enacted after recommendations from the FFC have been considered • Sections 228, 229 and 230 – Legislation relating to provincial taxes, municipal fiscal powers and functions, as well as provincial and municipal loans may only be enacted after recommendations from the FFC have been considered

Legislative Mandate • Section 9 of the Municipal Systems Act – The assessment of the FFC must be obtained when a function or power is assigned by national or provincial government to local government • Section 3 of the Financial and Fiscal Commission Amendment Act of 2003 – The FFC must provide advice regarding the assignment of a function or power between any of the spheres of government • Section 4 of the Local Government: Municipal Finance Management Act – The FFC must comment in writing on any draft legislation directly or indirectly amending this Act

Performance Against Objectives

2007 Submission on the Division of Revenue

Management Strategic and Business Planning

Strategy and Business Planning Background • FCC undertook a Strategy and Business Planning exercise in 2004/2005 • Outcomes not dissimilar to those achieved in terms of the 2006/2007 Strategy Review exercise • Difference lies in the holistic approach of the 2007 Strategy Review, its intensity, as well as the far reaching and forward looking nature and extent of its outcomes • Both exercises remain loyal to the Constitutional and Legislative Mandates of the FFC Justification • The 2007 exercise was necessitated by a change in Management and the need to establish whether in fact the 2004/2005 outcomes and business plans were in line with the views of current Management in terms of: • strategic visioning (alignment of vision and mission; anticipatory change; learning environment; brand equity) • quality focus (research excellence, continuous improvement, commitment to quality, structured processes), • value creation (proper prospectus, impact of decisions, capacity breakthroughs, scenario development) • stakeholder focus (stakeholder involvement; stakeholder buy-in; right first time, on time and every time;, rapid response), • diversity of issues • leadership (organisational climate, organisational morale and structure, performance management, staff empowerment) and • resources and capabilities (funding, talent, alliance resources, important technologies, facilities and infrastructure)

Common Factors Strategy and Business Planning

Strategy and Business Planning Differences

Challenges in Implementation: 2005 – 2008 and 2007/ 2008 – 2011 Strategies and Business Plans Strategy and Business Planning

Interventions: Implementation of 2005 – 2008 and 2007/ 2008 – 2011 Strategies and Business Plans Strategy and Business Planning

Management Expenditure

Expenditure 2006/2007 • In line with its 2005 – 2008 Strategic Objectives, a significant portion of the allocation for the 2006/2007 FY was expended on personnel and research costs • Various cost saving measures (the internalising of capacity being the most notable) were employed to ensure that the priorities stated in the budget were met • Initiatives such as institution and capacity building do, however, still require substantial additional funds • Despite all efforts to ensure that the FFC was able to honour its statutory obligations within the financial constraints of its MTEF allocation, the FFC recorded a net deficit of R 3 039 998 • The Commission did comply with the provisions of Section 39(2)(b)(ii) and 40(5) of the PFMA in that National Treasury was advised of the possible deficit, the reasons therefore, and the steps that were being considered to deal with it. • The deficit was attributable among others to the following post Adjustment Estimates and MTEF processes:

Personnel Cost Analysis 2006/2007

2006/2007 Recruits

2006/2007 Reorganisation

2006/2007 Resignations

Salaries by Job Status

Management Risk

Risk • A Comprehensive Risk Management Framework has been developed and some aspects are already being implemented. It covers: • All financial and non-financial risks • All the issues raised by the Internal Auditor as well as the Auditor-General • Issues of staff turnover will be addressed in terms of • A Remuneration Strategy • A Remuneration Policy • A Retention Policy • A Customised Pay Scale • A re-grading exercise to bring all positions in line with the newly developed Remuneration Strategy, the Retention Policy, the Remuneration Policy and the Customised Pay Scale • Employee empowerment, a move away from an authoritarian culture, and the ongoing training of Managers in people management . • Gender equity issues at Senior Management level will be addressed in terms of targeted (but expensive) recruitment strategies and in terms of the FFC’s current Employment Equity Plan. Progress in implementation of the Plan has been rated as reasonable by the Director General: Labour in the most recent Department of Labour Assessment

Risk • The Finance Department has been restructured to deal with emerging challenges and a growing organisation, and additional specialist capacity has either been brought in or is in the process of being sourced • Specialist management accountant capacity has already been employed and this will serve to eliminate challenges relating among others to reconciliations • Specialist supply chain management capacity will be sourced as soon as funds become available • As earlier stated, stakeholder requests will only be accommodated if budgeted for, accompanied by ring-fenced funding or if cost recovery becomes an option open to the FFC • Financial management systems have been upgraded, delegations revisited, compliance made a priority, and proper budgeting processes introduced • The reduce reliance on outsourced capacity and build internal capacity thereby not only minimising costs, encouraging the development of in-house talent but will also enhancing the quality of service delivery • The breadth and depth of analysis in research will be assured through the resources that are now available in the recently re-commissioned Library which now has knowledge and enterprise content management capacity both of which serve to promote knowledge sharing and preserve institutional memory • The relevance and timeliness of research output will be assured through ongoing environmental scanning by the offices of the external stakeholder management function and the institutionalisation of two-way communication • The quality of research outputs will be assured through the entrenchment of research ethics and the introduction of a double-blind peer review mechanism

Management Finances

Finances • The FFC has been given an unqualified audit report by the Auditor-General for the 2006/2007 FY • The Auditor-General did however raise “Going Concern” as a matter of emphasis in the the light of the deficit that was recorded by the FFC

Conclusion • The format and extent of the Report has changed to: • Reflect not only what past strategies, plans and budgets have achieved and/or not achieved, but also to give stakeholders an informed view of how the FFC intends to generate and deliver optimal value going forward • Bring it more in line with the requirements of the Auditor-General and National Treasury regarding reporting

Pillars of Organisational Capacity

FINANCIAL AND FISCAL COMMISSION