Jim Brumby, Lead Public Sector Specialist of the World Bank (left) described how public financial management reform has helped South Africa to achieve political stability and economic growth. Mr. Brumby suggested that the Government of South Africa has been innovative in risk management.Freeman Nomvalo the Accountant General of the National Treasury, Government of South
Africa (right), introduced the Financial Management Improvement Project in South
Africa including critical factors that contributed to its success. Mr. Nomvalo described the changes in public financial management in South Africa from a lack of uniformity in financial management and strategic plans towards an accountability framework.
The reform process in South Africa has been executed in four phases. The first phase (1994-1998) saw the introduction of a new classification system compatible with Government Financial Statistics (GFS) and Medium Term Expenditure Frameworks. Information from across government entities were integrated with a data warehouse.
The second phase (1999-2002) saw the introduction of the Accounting Standards Board and improved economic classifications in aid of effectively managing increased government expenditures. Mr. Nomvalo described how South Africa adapted GFS to provide more effective decision-making information.
During the third phase (2003-2006), the government introduced a framework for Public Private Partnerships (PPP). Additional frameworks and policies, in areas such as procurement, were provided. Mr. Nomvalo described how the government empowered managers to manage within a framework. A risk management framework was developed.
The latest phase began in 2007. A project for an Integrated Financial Management System has started with an expectation of full deployment in the next three years. This project includes some off-the-shelf components and some custom development.
Mr. Nomvalo described how effective oversight required a consistent method of reporting and moving towards an accrual basis of accounting. The Government of South Africa operates on a modified cash basis but reporting has many accrual features. The government has developed a framework for improving service delivery and improving capacity.
The Government of South Africa has adapted practices from other countries to create a Financial Capability Maturity Model that has been rolled out through the national government. There are plans to roll this out across all governments.
Mr. Nomvalo described the financial framework process that links priorities with budget preparation and service delivery. Mr. Nomvalo commented that what most people describe as "budget execution" should be described as "service delivery."
Why the process works in South Africa was described. Roles and responsibilities are well defined. Reporting timeframes are clearly. Mr. Nomvalo indicated that political will is necessary for reform and that political reform is much more than politicians. Important civil servants much also have the political will.
Some of the challenges faced by the reform project include migrating to accrual accounting and ensuring that reports are relevant and understandable. Mr. Nomvalo indicated that all stakeholders need to buy into the reform. South Africa has experienced situations where managers are not prepared to spend even though there are funds available. There is no system of financial management that can work without strong oversight.
The Constitution of South Africa requires the development of national standards. These national standards are consistent with IFRS and somewhat more advanced than IPSAS.
The Government of South Africa is implementing the IFMS, focusing on capacity building and working on government-wide reporting. A performance framework is being developed to measure value for money. There remains challenges in measuring outcomes.
The South African experience showed that the following elements were critical for successful PFM reform:
- Focus on addressing the country's problem
- Implement a legal framework that underpins the reform
- Provide a clear definition of roles
- Engage in broad consultation
- Set clear expectations for reporting
- Sustain political will with government
- Provide a clear vision
Mr. Nomvalo warns that although the South African Government has made great strides, there remains considerable challenges.
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