1 FINANCIAL AND FISCAL COMMISSION 2008/2009 ANNUAL REPORT.

1

FINANCIAL AND FISCAL COMMISSION

2008/2009 ANNUAL REPORT

2

The Commission

The Commission consists of: A Chairperson who is also Chief Executive and Accounting Officer of the

Commission

A Deputy Chairperson

Seven other Commissioners

The Chairperson, Deputy Chairperson and two (2) other

Commissioners are nominated by the National Executive

Three (3) Commissioners are nominated by Premiers of

Provinces

Two (2) Commissioners are nominated by organised local

government

3

The Commission

All appointments are made by the President

The Chairperson and Deputy Chairperson are full-time

Commissioners

All other Commissioners are part time

One vacancy (organised local government nominee) as of

Commencing July 2009

The terms of office of current Commissioners are:

Chairperson: September 2005 – August 2010

Deputy Chairperson and Two (2) non-executive Commissioners:

March 2008 – February 2013

Four(4) non-executive Commissioners: July 2009 – June 2014

4

Purpose of the Commission

Vision

To enhance the developmental impact of public resources through the financial and

fiscal system in South Africa Mission

To provide proactive and independent advice through cutting edge research capabilities

5

Mandate of the Commission

The Commission is established in terms of Section 220 of the

Constitution of the Republic of South Africa Act No.

108 of 1996 as amended

The Constitution provides among others that the Commission

is an independent, objective, impartial and unbiased

advisory institution to Parliament, provincial legislatures,

organised local government and other organs of state on

the division of revenue among the three spheres of

government

Any other financial and fiscal matters

6

Enabling Legislation

The Intergovernmental Fiscal Relations Act No. 97 of

1997 as amended,

The Financial and Fiscal Commission Act No. 99 of 1997

as amended,

The Municipal Systems Act No. 32 of 2000 as amended,

The Provincial Tax Regulation Process Act No. 53 of 2001

as amended,

The Municipal Finance Management Act No. 56 of 2003 as

amended,

The Intergovernmental Relations Framework Act No. 13

of 2005 as amended, and

The Municipal Fiscal Powers and Functions Act No. 12 of

2007.

7

Commission Achievements

Conducted research into among others Housing Delivery, the

Financing of Health Care, Road infrastructure, Local government

Revenue Sources and Electricity, Water Pricing and Sanitation

Published a Technical Report of the research conducted during

the reporting period

Conducted training on its Constitutionally Mandated Basic

Services Simulation Model

Upgraded its financial reporting and accounting systems and

processes so as to entrench performance budgeting

Conducted an annual review of its internal controls as well as its

financial and non-financial Risk Management Framework

8


Internalised all adverse internal and external audit findings of the 2007/2008 FY

and introduced systems to ensure that there was no recurrence of findings

Engaged with Parliament, Provincial Legislatures and Executives, Organised Local

Government, National Government and other organs of state in briefings,

hearings and other for a

Adopted a 2009 – 2014 Corporate and Research Strategy that seek to

proactively respond to current and future challenges confronting the South

African system of intergovernmental fiscal relations conducted research in the

following areas among others:

Timeously

Tabled its 2007/2008 Annual Report

Tabled its 2009/2010 Submission on the Division of Revenue

Responded to the 2009 Division of Revenue Bill

9


Some of the recommendations that the Commission made in its

2009/2010 Annual Submission on the Division of Revenue

and Government’s Response to them are the following:

Education

Government should take into account the socio-

economic circumstances of the learners when national

quintile ranking of schools.

Government agreed with this recommendation

10


Financing of Health Care

Gazette Indicative allocations to clinics and other public health

care facilities, as and when they fall under provincial control.

Government agreed with this recommendation

Housing Delivery

Government should speed up the process of accrediting

municipalities that have the capacity to administer housing

programmes.

Government response was it was reviewing the powers and functions of

provinces and local government, and this will be addressed as part of

this review

11


Augmenting Local Government Revenue

Replacement revenue source for municipalities should be a tax

that enhances fiscal autonomy, strengthens accountability of

local government, is buoyant and maintains macroeconomic

balance.

Government agreed with recommendation in principle but prefers other

non tax measures to be evaluated as well.

Electricity Pricing, Generation and Distribution

Government should put in place a financing framework that deals

effectively with electricity pricing and a pricing environment

reflective of costs, efficiency, stability and externalities.

Government agreed with the recommendation. The implications of higher

prices for the cost of providing free basic electricity would be taken into

account as part of the division of revenue

12

Commission Achievements In its 2009 Commission Response to the 2009/2010 Division

of Revenue Bill the Commission had the following concerns at a

strategic level:

the increased proliferation of conditional grants instead of a

move towards consolidation

instances where policy implementation stalls, resulting in

negative impacts on the intergovernmental fiscal system

the design of capacity building grants that do not go through

the DORA but through an agency type agreement

the fiscal spillovers associated with the transition phase of the

re-demarcation process

13


The Commission also provided detailed technical comment

on:

The Money Bills Amendment Procedures and Related

Matters Bill 2008 in respect of which it highlighted the

introduction of an additional stage in the budget process

The Financial Management of Parliament Bill 2008 which

it viewed as unnecessary as the Public Finance Management

Act 1999 already catered for the matters therein dealt with

The National Policy for an Equitable Provision of an

Enabling School Physical Teaching and Learning

Environment 2008

14


The budgetary challenges faced by the Government of Limpopo

with regard to the implementation of the provisions Funding

for the Traditional Leadership Government Act 2003

All Commission research and advisory initiatives continue to

contribute to the still nascent body of knowledge on

developmentally oriented intergovernmental relations.

The Commission has been given

an unqualified audit

with no matters of emphasis.

15

Revenue

Revenue 2008/09

99%

1%

Approved Allocation

Other Income

16

Operating Expenses

Operating Expenses

20%

21%

7%14%

14%

24%

Travelling

Office Premises

Workshops and Seminars

Publications

I.T.

Other Operating

17

Financials Performance and Position

Description Movement % Variance Remarks

Revenue 5% Decrease in allocations

Staff Costs 6% Staff Turnover

Depreciation 10% Non acquisition of Fixed Assets

Professional Fees 290% Commissioned Research, audit fees

Operating Expenses 27.3% Austerity Measures imposed

Asset Base 19.0% Non acquisition of assets

Liabilities 7.0% FFC's Work Cycle not in line financial year end.

18

Personnel Costs Per Division

% of personnel costs per Division

13%

41%

46%Commisioners:

Support Services:

RRP:

19

MTEF

MTEF Allocation vs Requested Funds

0

26,125 24,753 25,97127,529

0

29,870

36,606

40,52342,186

0

5000

10000

15000

20000

25000

30000

35000

40000

45000

F/Year 2008/9 2009/10 2010/11 2011/12

20

Challenges

Despite what the Commission has been able to achieve,

challenges remain:

On the human resource front - talent remains scarce, staff

turnover continues to be way above acceptable levels,

investment in employee skills development remains

restricted, and meeting employment equity targets continued

to be elusive. All of these undermine the Commission’s

research and output in terms of breadth and depth

Human Resource Strategies, Policies and staffing plans were

however developed to respond to these challenges and the

requirements for the implementation of the Commission’s

2009 to 2014 Corporate and Research Strategic Plans

21

Challenges

The Commission’s information technology infrastructure on which it

is highly dependent needs to be replaced

The Money Bills Amendment Procedures and Related Matters Act No.

9 of 2009 has introduced an additional resource intensive step to

the budget process for the Commission (sect.9 (7)(a))

The Framework for the Devolution of Budgets and Associated

Accommodation Charges has devolved the maintenance;

property rates; municipal services and leasing budgets to user

entities and no provision has been made for money to follow

functions

The cost of compliance continues to rise with audit fees now

constituting more than 5% of the Commission’s budget

22

Challenges The cost of travel necessitated by the need for stakeholder

engagement remains a major constraint

All of the above has required constant reprioritisation and the

implementation of austerity measures in order for the Commission

to be in a position to at least not default in the discharge of its

mandate.

This has the potential to undermine the effectiveness of the

Commission in delivery of its mandate.

23

Concluding Remarks

Allocation Trends

8%

11%

24%

-5% -5%

5% 6%

0

0

0

0

0

0

0

0

0

1

2004/05

2005/06

2006/07

2007/08

2008/9

2009/10

2010/11

2011/12

1 FINANCIAL AND FISCAL COMMISSION 2008/2009 ANNUAL REPORT.

Documents