Oversight Role of Parliament: Budgets and Annual Reports

1. Oversight Role of Parliament:Budgets and Annual Reports Presentation based on the Guideline for Legislative Oversight through Annual Reports Nols du Plessis National Treasury 23 February 2005

2. Overview of Presentation • Background • Part 1: Strategic plans and budgets • Part 2: Tabling process for Annual Reports • Part 3: Roles in the Oversight of Annual Reports • Part 4: Annual Report Oversight Process • Part 5: Interrogating & Evaluating Annual Reports • Conclusion

3. Background

4. The Constitution and Oversight • Section 55(2) says the National Assembly: “must provide for 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.” • Section 92(3)(b) requires that: “Members of Cabinet must provide Parliament with full and regular reports concerning matters under their control.”

5. Recent Reforms Facilitate Oversight • PFMA provides financial management framework • focus on accountability through improved information • Better planning information • Strategic and Corporate Plans • Clear performance measures and performance targets • Improved Budget documentation • Budget Review • Estimates of National Expenditure • In-year monitoring information • Monthly financial reports • Quarterly performance reports • Improved end-year reporting • Detailed Annual Reports (with annual financial statements) • Available soon after end of financial year

6. Structuring the Oversight Process • Legislatures establish committees to facilitate their work • Division of labour allows for specialisation and more time to be spent on research and actual oversight work • Division of labour between the portfolio committees works very well in relation to the oversight of the Budget • Each portfolio committee is responsible for a Vote and related public entities • The division of labour works less well when it comes to end-year oversight of Annual Reports • the public accounts committee oversees all department and public entity annual financial statements and Audit Reports • although Annual Reports are referred to portfolio committees there is no structured system of oversight • Portfolio committees are well place to play a greater, more structured role in the oversight of Annual Reports given their involvement in policy development, the Budget and in-year oversight • Need to develop a systematic oversight process to complement the Budget approval process

7. Closing the accountability loop • Entities produce Strategic/Corporate Plans setting out performance measures and targets for the coming financial year • Through the Budget the executive indicates what funds are required to implement these Strategic/Corporate Plans • The legislatures approve the Budget, and so appropriate funds for the implementation of the Strategic/Corporate Plans • The Annual Reports indicate how the executive have used the appropriated funds to implement the Strategic/Corporate Plans • The legislatures should exercise oversight of the Annual Reports to check whether the executive has performed acceptably and used the appropriated funds for the intended purposes

8. Why is oversight role of legislature so important? • Legislature is last point of accountability • If legislature does not threaten to take action, then everyone above the chain will have less incentive to perform • Executive should take more responsibility for performance • Officials should take primary responsibility • If management processes earlier in the chain fail, the legislature should be able to act even when all else fails

9. Part 1: Strategic/Corporate Plans & Budgets

10. Key problems • Limited resources to fund various programmes of Government • Many programmes perform poorly • Is lack of capacity really the problem? • Key problem - do we tolerate poor performance? • Poor governance means poor service delivery

11. Evaluating Strategic Plans & Budgets 1. Are the entity’s objectives and performance targets linked to government’s overall aims? 2. Are the objectives and targets sufficiently comprehensive? 3. Do the performance targets drive continuous improvement? 4. Is there continuity in the performance targets between years? 5. Does the entity have too many performance targets? 6. Are any additional/alternative performance measures and targets needed? 7. How well do the performance targets measure the delivery of outputs and the achievement of outcomes? 8. Does the entity have the right balance between output and outcome performance targets? 9. Are effective information systems in place to measure performance?

12. Evaluating Corporate Plans & Budgets • Capital expenditure programmes • Job creation • Economic growth • Procurement (BEE, local content) • Three year borrowing programmes • New investment plans for entities • Risk Management • Revenue targets • Debt service cost • Foreign exchange transactions • Social and transformation issues • Electricity roll-out • BEE • Safety, Health and the environment • Commitment to prevent workplace accidents • Health issues are critical to an entities success • Environmental and other legislation imposes duties

13. Weaknesses to address • Information to measure performance not available / quality needs to improve • Submission of corporate plans & budgets of public entities to parliament • In year management, monitoring and reporting • Management on a monthly basis to be pro-active • Legislature on a quarterly basis to deal with problems if management fails

14. Part 2: Tabling Process for Annual Reports

15. Legislative requirement for tabling • Section 65(1) of PFMA • the Minister responsible for a department or public entity must table in the relevant legislature no later than 30 September the annual report, financial statements and audit report • Section 65(2)(a) of PFMA • a Minister who fails to table an annual report for an entity by 30 September must table a written explanation in the legislature setting out the reasons why the report was not tabled and indicating when the report will be tabled

16. Timely Tabling Process 1. Clerk of Papers must maintain databases of all the entities required to submit annual reports in terms of the PFMA 2. The Minister must inform the Clerk of Papers by letter of intention to table an annual report and send the required number of copies 3. The Clerk of Papers must issue a receipt and record receipt on the database 4. Ministers may table their annual reports at any time prior to 30 September, which is the final deadline for timely tabling 5. The Clerk of Papers must record the tabling of each annual report in the Order Paper (or ATC at the national sphere) at the earliest opportunity 6. On 1 October the Clerk of Papers must prepare a special Order Paper that: · Lists the entities for which annual reports have been tabled prior to the deadline. · Lists the entities for which annual reports have not been tabled, but where a written explanation has been submitted · Lists the entities for which annual reports have not been tabled and no written explanation has been submitted 7. On 2 October the Speaker should table the special Order Paper in the House 8. Legislatures should designate 30 September the ‘Day of Delivery’

17. Late Tabling Process 1. Each Friday, after the 30 September, the Clerk of Papers should submit to the Speaker for tabling in the House a report that • Lists the entities for which annual reports were tabled during the preceding week. • Lists the entities for which annual reports are outstanding, but where a written explanation setting out reasons for the delay has been submitted • Lists the entities for which annual reports are outstanding, and for which no written explanation has been submitted 2. This process should continue every Friday until the last entity’s report is tabled 3. In first week of October, the Speaker should communicate with Ministers on a formal basis as regards the late tabling of annual reports and the tabling of written explanations • Use standard letters • Put in place a mechanism to follow-up on communication 4. Once all annual reports have been tabled, the Speaker should make a special announcement in the House to record the completion of the tabling process

18. Part 3: Roles in the Oversight of Annual Reports

19. Defining roles in the House Rules • House Rules should define the roles of the different players in the oversight of Annual Reports: • The Speaker’s responsibilities in managing the tabling processes • The procedure for referring the annual reports to the relevant portfolio committee and the public accounts committee • The respective roles of the portfolio committees and public accounts committee in exercising oversight of annual reports • The processes of oversight that the portfolio committees and public accounts committee may follow • The expected outputs of the oversight process • The time periods within which the different oversight processes should take place and when the different oversight outputs must be tabled in the House • Note that the absence of such House Rules is not an obstacle to the implementation of the proposed oversight process

20. Role of the Public Accounts Committee • Specialised role of ‘protector of the public purse’ • Focus on the following: (i) The General Report of the Auditor General (ii) Financial probity (e.g. fraud) (iii) Compliance with the PFMA and associated Treasury Regulations (iv) The interrogation of over-expenditure (relative to appropriations), and other instances of unauthorised expenditure (v) The interrogation of fruitless and wasteful expenditure (vi) The functioning of risk management systems (vii) Supply chain management and procurement, particularly large tenders, large capital projects and Public Private Partnership deals (viii) The disposal of significant state assets, and any major financial or related losses suffered by government (ix) Corporate governance of departments, public entities and constitutional institutions (x) The consolidated financial statements of government, and the National Treasury’s adherence to its deficit targets

21. Role of Portfolio Committees • Close accountability loop by exercising oversight of service delivery • Focus on the following: (i) The technical quality of the annual reports (ii) Whether reports cover all performance targets set out in strategic plans; (iii) The quality of the performance information (iv) The economy, efficiency and effectiveness of service delivery as measured by the performance indicators or by the AG in a performance audit, or by way of other information (v) The equity of service delivery; (vi) The implementation of the entity’s service delivery improvement plan; (vii) Evaluating management’s explanations why service delivery was not in line with targets set in the strategic plans and budgets; (viii) Investigating under or over expenditure, the impact on service delivery and the measures taken to comply with the Budget (ix) Commenting on the Minister’s evaluation of the accounting officer’s performance, and the appropriateness of a performance bonus or sanction

22. Links between Committees • Committees need to share information to improve the overall effectiveness of oversight • Portfolio committees in the various clusters should consider holding joint hearings • The public accounts committee should provide information on key issues raised in the AG’s General Report to the other committees • Portfolio committees may consider appointing rapporteurs to brief the public accounts committee on important issues it has identified in its oversight process

23. Input by other role-players (1) • Auditor-General • Auditing of annual financial statements • Auditing of performance information • Performance audits of selected entities • Support for public accounts committees • Expert witness during oversight hearings • National and provincial treasuries • Annually prepare a Summary Guide to the technical requirements for annual reports’ • Evaluate whether departments comply with technical requirements for annual reports • Programme officers available to participate in oversight hearings • Constitutional institutions • Provide inputs to the oversight hearings dealing with issues within their mandate

24. Input by other role-players (2) • Departments with public entities • Produce an overview of the performance of the various public entities within the Minister’s portfolio • Committee researchers • Be familiar with the challenges, policies and other developments • Review strategic plans, budgets, in-year reports and previous annual reports • Monitor developments in their area of focus on an ongoing basis • Talk to the relevant treasury, auditors and other stakeholders • Stakeholders and the public • Request subject experts to evaluate entities’ performances • Accounting Officers • Written explanation to Minister on poor audit outcomes • Corrective steps • Preparation of annual reports should be part of annual performance evaluation process • Executive Authorities • Minister should approve corrective steps • Annual report must be used to assess performance of accounting officers

25. Part 4: Annual Report Oversight Process

26. Annual Report Tabling Processes Annual Report Oversight Process Timeline Public Accounts Committee process Portfolio Committee process Timely tabling process Day of Delivery 30 September Late tabling process Referral to Public Accounts Committee Referral to Portfolio Committees Review of AG’s General Report Preparation Phase First two weeks in October Preparation Phase Joint Workshops(provincial concurrent functions) Third week in October Tabling of a weekly update of outstanding Annual Reports Hearings Phase Last week in October Ongoing Oversight Processes Report Writing Phase First week in November Second week of November Announcement of completion of tabling process Tabling of Oversight Reports Follow-upPhase Recommendations for the preparation of the Finance Bill Before 31 March Overview of Oversight Process

27. Oversight preparation phase • Start preparations well before 30 September • Committee staff must ensure: • members have access to all relevant documents • identify and contact subject experts for hearings • Members’ preparations: • read all relevant documents • review current year’s performance compared to outcome of previous oversight process • consult with subject experts and other stakeholders • prioritise issues and questions • Committee should meet prior to hearing to: • identify key issues • identify what they want to get out of the hearing • prioritise certain key questions

28. Oversight hearings phase • Hold hearings during period 15 to 31 October • Request Minister to give performance overview of the department and all public entities in portfolio • Options for structuring the oversight hearings: 1. A presentation by the Minister and/or the accounting officer and then a page-by-page review of the annual report 2. A presentation by the Minister and/or the accounting officer followed by a presentation by a designated member of the committee dealing with key issues as identified by the Committee, followed by a question and answer session 3. A presentation by the Minister and/or the accounting officer followed by inputs by invited experts or stakeholder organisations, followed by a question and answer session. 4. A presentation by the Minister and/or the accounting officer followed by a full-scale public hearing, followed by a question and answer session

29. Oversight report-writing phase • Each portfolio committee should prepare an Oversight Report for each entity they oversee • Oversight Reports should deal with: • Compliance with the tabling deadlines • Compliance with the technical requirements for annual reports • The usefulness of the General Information section • Comments on the entity’s reported performance • Comments on the entity’s human resource situation and policies • Key issues that the committee would like to draw to the entity’s attention as regards its performance • Recommendations in relation to any of the issues noted above

30. Tabling of Oversight Reports • Oversight Reports should be tabled in the House not later than 14 November or, at latest, before the December recess • In certain circumstances the House may consider debating certain issues contained in the Reports • Once accepted, Reports should be sent to the relevant Minister for response to resolutions

31. Follow-up phase • Legislatures need to put in place systems to manage and track resolutions • Aim of such systems • to bring resolutions regularly to the attention of Ministers • to ensure that Ministers respond to resolutions • to ensure issues raised in resolutions get resolved

32. Part 5: Interrogating & Evaluating Annual Reports

33. Aim of Portfolio Committees’ Oversight • Clear understanding of purpose of oversight helps to achieve objectives • Fulfil constitutional obligation to hold executive accountable • Ensure departments and public entities are: • Producing high quality services, economically, efficiently and effectively • Complying with constitutional and/or legislative mandates, strategic plans and budgets • Contributing to the realisation of government’s objectives • Gather information on the views of customers and clients • Make recommendations on improving the quality and responsiveness of services

34. Preparing to exercise oversight Oversight Preparation Checklist The committee needs to work as a team in exercising oversight. The oversight process is about the legislature exercising oversight of the executive in accordance with the Constitution It is NOT about opposition parties exercising oversight of government Be ready - think about the issues and information needs well in advance of the start of the oversight process. Be disciplined - set clear start, interim milestones and completion targets Be aware - know about other oversight processes that may be relevant, e.g. of other departments or entities, or of provincial department. Be focused - tailor the oversight process to where it can have the most impact, i.e. set clear priorities. Be intelligent - be flexible enough to take on board new issues and options should they arise in the course of the oversight process. Be open - consult with outside experts, organisations and clients throughout. Be forward looking - remember that the purpose of oversight is to improve service delivery in the future.

35. Oversight of technical quality of Annual Reports

36. Aim of overseeing technical quality • To check that entities’ annual reports comply with the legal and policy frameworks for: • the structuring of the annual reports • the compilation of information • tabling of annual reports

37. Necessary background information • Guide for the Preparation of Annual Reports issued by National Treasury • Familiarity with the technical terms and methods used to • describe service delivery performance • especially economy, efficiency and effectiveness • describe human resource issues • Strategic plans and budgets for the entity

38. Typical technical focus questions (i) Was the report delivered on time? (ii) Is the report in line with the prescribed formats? (iii) Does the layout of the report facilitate understanding? (iv) Is the information communicated simply and clearly? (v) Is the report original, or are key portions copied from previous reports? (vi) Does the report deal faithfully with each aspect of the strategic plan? (vii) Is each measurable objective specified in the strategic plan reported on in the report? (viii) Is the service delivery information presented in the report reliable? • Are the performance measures robust? • Can the performance information be verified? • Can the human resource information be verified? (ix) Was an excessive amount spent on the production of the annual report?

39. Oversight of entities’ performance

40. Aim of overseeing performance • To test whether the annual report is an accurate record of the entity’s performance • To evaluate whether the reported performance is in line with the entity’s strategic plans and budgets • To evaluate whether performance is acceptable given the operating environment • To assess how the entity might improve on its performance in future Focus is on: How can the entity deliver services better in future?

41. Necessary background information • Information on the entity • its mandate,structure, way of operating, strengths and weaknesses • The entity’s strategic plan and budget • Information on external and internal challenges faced by the entity • Information from clients

42. Organisational concerns and options • How effectively does the entity contribute to the delivery of government objectives, as reflected in its mandate? • Should the mandate be changed to better reflect the priorities of government, and the needs of clients? • Is there a continuing need for the functions being delivered by the entity as a whole, and by each of its programmes? • If not, can the entity be closed down, or certain of its programmes be terminated? 4. Is there a need for new programmes?

43. Overspending and other poor audit outcomes • At what point did the accounting officer become aware of the risk of overspending? • At what point did the accounting officer inform his/her Minister of this risk? • Do the section 40(4)(c) PFMA reports, submitted by the accounting officer on 15 September and 15 October before the adjustments budget, project any over expenditure? • Do the section 40(4)(c) PFMA reports submitted by the accounting officer before the end of the financial year project any over expenditure? • Why were the adjustment budget process or section 16 of the PFMA not utilised to deal with the pressures that led to the overspending? • Were the Cabinet/EXCO made aware of potential overspending before it occurred • What is the outcome of the department’s audit? Apart from overspending, does the audit identify any other unauthorised expenditure? • What corrective steps have been taken or are being taken to address poor audit outcomes? • What disciplinary steps have been taken against erring officials? • Have criminal investigations been instituted against erring officials?

44. Evaluating Past Performance 1. Is the annual report transparent about the entity’s performance? • Or is it simply a public relations document? 2. Has the entity met its aims, objectives and performance targets and quality standards? • What were the reasons for any failures? 3. Have the entities performance targets changed over time? • Are targets increasing with increases in funding? 4. Are there examples of good practice in how the entity has delivered its services? 5. What changes have been made in the services provided to clients? • How can greater client choice be provided in future? 6. What are clients’ views on the nature and quality of services? • Have these views altered over time?

45. Evaluating Efficiency of Performance 1. Are there systems to identify clients’ needs and monitor the extent to which they are met? 2. Has the entity delivered value for money? • Over time, is it delivering its outputs at reduced cost? 3. Has the entity been innovative in managing costs and improving performance? • What steps has it taken in this regard? • Is there any scope for increased efficiency savings? 4. Are staff hampered by internal bureaucracy? • What has been done to encourage greater flexibility and creativity in delivering services? What can still be done? 5. How effective have the relationships with other entities operating in the same or related areas been? 6. Have service delivery risks been managed adequately? 7. Does the entity comply with the Access to Information Act?

46. Developing effective partnerships 1. What links does the entity have with other organisations? 2. What reasons has the entity given for being involved in its current partnership(s)? How persuasive are these? 3. Has the entity reviewed its partnerships? 4. How does the entity measure whether its partnerships are contributing positively to the realisation of its objectives? 5. What do the entity’s partnerships cost it? • To what extent are these costs justified by the benefits that the partnership delivers? 6. Where could the entity develop further joint-working arrangements with other bodies to enhance the efficiency and effectiveness of service delivery?

47. Making better use of new technology • To what extent is the entity’s management aware of the development of the government’s IT strategy and acting in accordance with it? • How can the entity make better use of new technology to improve the delivery of its services and functions? • To what extent has the entity ensured that all its staff have adequate IT training and can make full use of its systems? • If an entity has decided to use IT in new ways, has it ensured that it has an adequate statutory basis for any new use of personal data?

48. Human resource development 1. Has progress been made with the implementation of the Service Delivery Improvement Plan? • Is there evidence that services are improving as a result? 2. What has been done to fill key vacancies? • What more can be done? 3. What progress has been made with employment equity? • What strategies have been adopted to promote greater equity? 4. What is the status of the skills development programme? • Is the programme making a difference to staff’s ability to deliver services? 5. How much was paid out in performance bonuses? • How much did the accounting officer and other senior managers receive as performance bonuses? • Are these rewards in line with the entity’s delivery performance? 5. How many disciplinary matters are outstanding? • What is the age profile of these complaints? • What is the entity doing to ensure the speedy conclusion of matters? 6. How many senior management posts do consultants fill? • How will the entity reduce its reliance on consultants for routine functions?

49. Conclusion

50. Taking the process forward • Each legislature needs to develop a systematic approach to reviewing annual reports that meets its own circumstances • This approach needs to be documented, and where necessary changes need to be made to the House Rules • Extensive training is required both for members and for committee support staff