South Africa Western Cape Province 2014

 Summary assessment
1. Integrated assessment of PFM performance
In the section below, a summary of the performance of PFM systems, procedures and practices for Western Cape as measured through the PEFA assessment are described in terms of six critical dimensions of PFM as defined in the PEFA methodology (PEFA:2013). These are:  Credibility of the budget;   Comprehensiveness and transparency of the budget process;   Policy-based budgeting;   Predictability and control in budget execution;   Accounting, recording and reporting; and   External scrutiny and audit.
While donor practices were also considered, they were not scored but detail is provided to enable independent judgement. Thus donor funds are considered as part of the discussion by way of their impact on the country’s PFM in each section on the six critical dimensions of PFM.
Predictability of transfers from a higher level of government
The predictability of transfers from the National Treasury to Western Cape Provincial Treasury was very high because annual deviation of both transfers and grants was low (less than 2 per cent per annum). This is based on commitment to a disbursement schedule as agreed by the National Treasury in Pretoria and Western Cape Provincial Treasury. Based on this performance, it is clear NT adheres to the payment schedule and agreed timescale.
Credibility of the budget
Western Cape has a largely credible budget system based that, during a three-year period, was characterised by fiscal discipline and prudence. Aggregate expenditure did not exceed the original budget by more than 5 per cent, and composition of expenditure performance was supported by a system that has contingency fund of less than 3 per cent and variance of budgeted expenditure was less than 5 per cent. Because of excellent and reliable in-year monitoring and reporting the arrears remained very low in relation to the budget. There are no contingency funds and zero tolerance to arrears accumulation. A low score assigned to revenue out-turn is based on underestimation of revenue which results in over-performance in relative terms and could lead to overexpenditure in an environment of good fiscal budget management.
Comprehensiveness and transparency
The budget formulation and execution is based on administrative, economic, programme and sub-programme (functional) classification aligned to GFS 2001 and COFOG standards and can produce consistent documentation according to these standards. The budget documentation is comprehensive and fulfils all the benchmarks relevant to the sub-national government. There is similarly consistency in the number and content of budget documentation at national and provincial level. Western Cape budget performance is considered to have an excellent rating based on completeness and comprehensiveness of budget documentation presented for approval.
There is no evidence of unreported extra-budgetary expenditure (other than donor-funded projects). All revenues generated directly by the departments are transferred to the provincial revenue fund (PRF) and reported on quarterly and annually in terms of the regulated reporting processes. Non-discretionary (conditional) grant projections are published annually in the Western Cape provincial government’s Appropriation Bill, tabled before the Western Cape Provincial Parliament. Projected grant allocations are shown as transfer payments to municipalities in each vote (where applicable) and are provided at the programme level. Actual grant allocations are provided in each vote’s quarterly and annual financial statements, as well as in the required monthly reports submitted by municipalities to the Western Cape Provincial Treasury.
Signed service level agreements and memoranda of understanding contain grant objectives, conditions, reporting requirements and payment schedules. Municipalities submit detailed monthly and bi-annual statements on projected and actual revenue and expenditure to the Provincial Treasury that detail grant allocations received from provincial departments.
All public entities under the control of the Western Cape provincial government submit fiscal reports to it least sixmonthly, as well as annual audited accounts. Western Cape provincial consolidates fiscal risk issues into a report at least annually. Municipalities cannot generate fiscal liabilities for provincial and national government. However, the Provincial Treasury collects monthly revenue and expenditure statements from municipalities. Six of the seven listed elements of information are made available to the public access through electronic media, websites, and print media.
Policy based budgeting

As part of the annual budget process, WC PT issues comprehensive budget circulars with clear timelines and deadlines. Adequate time exists for provincial departments to adhere to the budget calendar. Provincial Treasury issues comprehensive budget circulars to guide the budget preparation and submission process for provincial departments. Deadlines for milestones during the provincial budget process are realistic and achievable. In two of the three years reviewed under this assessment, the budget was signed into law after two months after the start of the fiscal year.
The provincial government’s MTBPS contain the high-level fiscal framework and estimates of revenue and expenditure. The annual EPRE contain detailed multi-year forecasts for each department. The Western Cape government is allowed to incur debt under certain circumstances, but no debt has been incurred for the period under review. As a policy WCG does not create public debt which is based on good practice.
Annual performance plans (APP) for each department are tabled each year in the Western Cape Provincial Parliament, detailing the reconciliations between multi-year financial projections, and performance information (including output and outcome) targets up to at least the programme level. Detailed infrastructure budget projections for the next fiscal year and the two outer years are tabled in the Provincial Parliament, contained in among other things department’s APPs. Strategic plans for departments and public entities detail plans for the acquisition and management of physical and financial assets.
Predictability and control in budget execution
Websites for the individual entities include essential detail of of the process and practice of licensing. The information is comprehensive, complete and modern, and is integrated with other laws associated with illegal consumption, sale, transportation, and delivery, buying and selling of liquor in Western Cape, gambling and horse racing and motor vehicle licensing.
Four main taxes exist covering liquor licensing, gambling and racing, vehicle licensing and fees. There is no centralised tax appeal mechanism as there is no tax revenue management body. The absence of specialisation often results in lack of a harmonised approach to tax collection, investigation, arrears management and reporting.
An annual forecast of cash flows is prepared alongside the budget, and is updated monthly. While no cash release constraints are imposed on the non-development budget, quarterly releases are made on the development budget. Administrative ministries/divisions can re-allocate their budgets during the year in their total allocations for development and non-development expenditure. However, an increase in the total grant can only be made by Parliament through supplementary appropriation.
The payroll function is centralised under the Premier except for education which is decentralised. Integrity of the payroll is significantly undermined by lack of integrated processes in PERSAL, otherwise the system is robust and provides good payroll functionality. The existing legal and regulatory framework governing procurement in WCG is comprehensive and should enable competitive bidding. The legal framework makes open competitive procurement the default method of procurement. However, the use of competitive procurement methods could not be assessed for lack of data. Two of the key procurement information elements – bidding opportunities and contract awards – were available but the latter was not easily accessible. The procurement constraints may justify use of a MAPS to addresses known weaknesses. In as much as the law provides for everything, there is an issue with lack of a one-stop website with comprehensive information on opportunities, awards, complaints and appeals etc. The lack of a regulatory procurement authority, other than the Provincial Treasury, is common in South Africa. The departments are delegated power to handle procurement, but a key challenge is the lack of harmonisation across departments in handling large contracts. Based on limited assessment information, there is a chance that problems identified and shown in the form of weak scores could be symptomatic and more detailed diagnostic tools could be employed to identify gaps, challenges and areas requiring reform.
The Western Cape government appears to be adequately staffed with qualified personnel, but the key issue is the reliance of transversal systems which cannot adequately interface and communicate fully. This lack of integration clearly shows the need to build integrated FMS based on the ERP model. There is also a lack of direct linkage between budgets and the accounting process as no system exists for automatic budget checks before payments are processed. Because BAS, PERSAL etc are top down bespoke systems, it is difficult to achieve integration as the core objective of the national systems is control. An integrated budgeting and accounting system (BAS), is one of the notable reforms over the past 10 years, but the challenge is that users in provinces are simply beneficiaries. Although there appears to be no widespread infringement of financial rules and regulations, there are weaknesses and lapses which have been reported in the Comptroller and Auditor-General’s reports. Internal audit function is operational but there is a need to modernise and harmonise using this function the combined assurance model. Existing internal audit functions are inadequate largely because large departments have perennial audit issues which can only be addressed by a change of audit strategy.
Accounting, recording and reporting
Reconciliation of bank accounts with the PRF and other accounts is undertaken on a daily, weekly and monthly basis. A dedicated department operates and manages Provincial Treasury operations for Western Cape. The absence of an integrated budget and accounting system (BAS) accounting system capable of producing monthly and annual expenditure reports showing comparison between budget and actual expenditure is not a major challenge because WC has qualified staff. Even though information generated appears to be robust, judging from the reviews of AG, there could be some concerns with accuracy of information, especially where manual system run transactions through spreadsheet systems. Neither the overall accounting nor management information system in ministries adequately supports real-time tracking of resources specially provided to front line delivery units. A consolidated financial statement is prepared annually covering revenue and capital expenditure of the government. Although information on revenue, expenditure and bank account balances is not always complete and timely, the omissions are not significant (recent AG reports). Government accounts are kept on a modified accrual basis and presented in the same format each year. The Western Cape team has improved financial reporting as evidenced by some of its departments being judged awarded a prize by SAIGA. Financial reporting standards for the public sector are independently reviewed and issued under the GRAP environment or framework. These are equivalent to IPSAS but customised to the needs of South Africa. Based on the information the Western Cape government has one of the best financial reporting frameworks and its annual financial statements and reports are well presented and comprehensive. Weaknesses identified and discussed above do not undermine the credibility and reliable of the financial statements.
External scrutiny and audit
The government’s budget estimates are reviewed by Parliament. A committee on estimates is expected to examine such of the estimates as it thinks fit or specifically referred to it by the House. However, in reality, the estimates committee examines the entire budget and makes recommendations on ways of improving the efficiency of public expenditures. The Parliament has enough time to conclude its review of the estimates, and this is considered adequate for a meaningful debate. An adjustment mechanism produces an adjustment Bill which allows some limited changes to the budget based on justifiable need. The supplementary budget does amend some items on the budget but in the set rules and procedures. The AGSA is a constitutional body with a constitutional mandate to audit the accounts of government agencies, public bodies and publicly owned companies, a total of 22 000 auditable units, and to report to provincial Parliament. AGSA CAG carries out financial, compliance, regularity and performance audits. Audit standards are set out in an audit manual based on INTOSAI and AFROSAI standards. The annual audit plan covers all large units and a proportion of the smaller units that are audited over a cycle of 12 months to three years. Observations involving serious financial irregularities are developed into report paragraphs. In general, audit reports are submitted to the Legislature within the period set by the law, though in some cases this has not been met. The AGSA has a robust and professional relationship with SCOPA. Every year between September and December, audit reports are presented, performance of departments reviewed, and supported by audit committees, appointed under the King framework and in terms of the law.
Donor practices
The Western Cape has only one project which is donor-funded under Global Fund. This amounted to more than R420 million, and largely operates outside the WCDOH budget and systems. Because the annual amount was less than 1 per cent of the Western Cape budget, and because it is limited and confined to WCDOH, it was prudent not to rate the donor practices. In order to provide adequate historical information, the details of the Global Fund amounting to R161 million for 2012/13 were provided and analysed. Each annual report has provision to disclose donor funds.  

Note by PEFA Secretariat: The 2014 PEFA South Africa - Free State Province Assessment had not been subject to PEFA Secretariat review and quality assurance process