Question

Summarize the PFM act into two pages

Answer 1

Introduction:

The Public Finance Management Act (PFMA), 1999 (Act No. 1 of 1999) (as amended by Act No. 29 of 1999) is one of the most important pieces of legislation passed by the first democratic government in South Africa. The Act promotes the objective of good financial management in order to maximise service delivery through the effective and efficient use of the limited resources.

The key objectives of the Act may be summarized as being to:

• Modernise the system of financial management in the public sector;
• Enable public sector managers to manage, but at the same time be held more accountable;
• Ensure the timely provision of quality information; and
• Eliminate the waste and corruption in the use of public assets.

KEY POLICY ISSUES :

Division of responsibility This Act assumes that the political head of a department (Cabinet Minister or a provincial MEC) is responsible for policy matters and outcomes; this includes seeking Parliamentary (or provincial legislature) approval and adoption of the department's budget vote. The head official (Director-General of a national department or provincial head of department) is responsible for outputs and implementation, and is accountable to Parliament or provincial legislature for the management of the implementation of that budget. This approach is in line with the approach of the new Public Service Regulations, which relies on a performance-driven system based on measurable outputs.

Application of this Act: Departments and Public Entities
This Act gives effect to section 216 and other sections of the constitution. It will apply to the national and provincial spheres and public entities under their ownership control. Parliament, provincial legislatures and independent institutions established by the Constitution are also covered in this Act. The Municipal Finance Management Act, No. 56 of 2003, covers the local government.

An important objective of this Act is to put in place a more effective financial accountability system over public entities. All entities are required to be listed- the major public entities listed in Schedule 2 enjoy full managerial autonomy, with government only able to intervene in its capacity as a majority or sole shareholder. Other public entities are listed in Schedule 3, and enjoy lesser degrees of autonomy.

Chapter Summary of the Act:-

Chapter One of the Act deals with definitions, objects, application and amendment of this Act. The Act will apply to national and provincial government institutions, which include national and provincial departments, and the entities under their ownership control.

Chapter Two of the Act establishes the National Treasury, and deals with its composition, functions, powers and responsibilities. The National Treasury is comprised of the Minister and the national department or departments responsible for financial and fiscal matters. The chapter also gives effect to section 213 of the constitution on the management of the national revenue Fund, any exclusions to depositing money received, and the authorisation required before incurring any expenditure.

Chapter Three establishes provincial treasuries and deals with their composition, powers and functions, and the management of provincial revenue funds.

Chapter Four on the budget process gives effect to section 215 of the constitution on the timing and content of national and provincial budgets, and the reporting requirements that will promote greater transparency in the implementation of a budget.

Chapter Five ensures that all national and provincial institutions and entities have accounting officers, spells out their responsibilities and the disciplinary sanctions that will apply in the event of negligence in fulfilling these responsibilities.

Chapter Six of the Act ensures that all public entities are listed in two Schedules. Schedule 2 covers the major public entities, and confers maximum autonomy to these entities. Schedule 3 covers all the other public entities with lesser degrees of autonomy.

Chapter Seven covers the responsibilities of Ministers and MECs, who are referred to as the executive authorities of departments and public entities.

Chapter Eight of the Act outlines general principles on borrowing and the issuing of guarantees. This chapter gives effect to section 218 of the Constitution on the issuing of guarantees.

Chapter Nine of the Act lists the areas over which the National Treasury is empowered to issue treasury regulations and instructions. It also obligates the appointment and composition of audit committees.

Chapter Ten of the Act defines financial misconduct, and deals with the procedures for disciplining those public officials guilty of financial misconduct. It also includes a provision for criminal prosecution to apply where there is gross financial misconduct.

Chapter Eleven establishes an Accounting Standards Board, which will have the power to determine generally recognised accounting practices for the public sector.

Chapter Twelve deals with transitional and other miscellaneous issues related to the implementation of this Act and when it takes effect. Some of the provisions of the Act cannot be implemented immediately, and may take up to five years to implement fully (e.g. the sections relating to consolidated financial statements). The transitional arrangements will allow the Minister to phase in such provisions.