PADM 2A2 Learning Unit 3 Budgeting.pdf

PUBLIC FINANCIAL & RESOURCE MANAGEMENT PADM2A2 Dr. Rasodi K Manyaka Lecturer of Public Administration School of Development Studies University of Mpumalanga Email: [email protected] Cell: 063 711 1173 T...

PUBLIC FINANCIAL & RESOURCE MANAGEMENT PADM2A2 Dr. Rasodi K Manyaka Lecturer of Public Administration School of Development Studies University of Mpumalanga Email: [email protected] Cell: 063 711 1173 Tel: 013 002 0361  Learning outcomes – To define a budget – Link government planning and budgeting – Differentiate between various types of Budgeting – Explain the purpose of a budget – Describe responsibilities of various role players in the budgeting process  Defining a Budget Section 215 of the Constitution of the Republic of South Africa, 1996 provides for the A budget is broadly regarded as a financial plan expressed in monetary terms. A budget can be defined as a financial plan for a specific period, in which specific amounts are allocated to specific purposes It has anticipated income and expenditure estimates. A working definition of a budget in this module is adopted from Pauw et al (2015), who defined a budget as a financial plan that estimates expenditure and authorizes certain expenditures based on revenue for work to be done in public interest with public money for a special period of time.  Planning and Budgeting Each year the accounting officer of an institution must prepare a strategic plan for the forthcoming MTEF for approval by the relevant executive authority Strategic planning charts the direction of a department over the next three (to five) years, while the medium-term budget allocation provides the resources to implement the plan. Planning guides the budget process as it establishes key areas, objectives, and strategies. Planning sets out an explicit map that guides the department towards achieving its goals and objectives by focusing on: – Organisational purpose and Objectives – Structure – Expenditure programs and Available resources – Deliverable outputs – Outputs performance measures or Service level indicators – Targets  The Strategic Plan must: Cover a period of three to five years and be consistent with the department’s published medium-term expenditure estimates. Include measurable objectives, extracted outcomes, programme outputs, indicators and targets. Include specific Constitutional and other legislative, functional and policy mandates that inform what the department performs. Include policy developments and legislative changes that frame programme spending plans over the three-year period. Include details of proposed acquisitions of fixed or movable capital assets, planned capital investments and rehabilitation and maintenance of physical assets. Include details of the proposed acquisition of financial assets or capital transfers and plans for the management of financial assets and liabilities. Include multi-year projections of income and projected receipts from the sale of assets. Include details of the Service Delivery Improvement Programme. Include details of proposed information technology acquisition or expansion in reference to an information technology plan that supports the information plans.  Strategic Planning and the Medium Term Expenditure Framework (MTEF) The MTEF provided a firm foundation for the integration of planning and budgeting. – Policy priorities are set in advance allowing departments to plan and budget for service delivery in line with the government’s agreed commitments. – Departments plan and spend on programmes according to an agreed three-year expenditure envelope, contributing to certainties and affordability over the medium term. In turn, aligning strategies and medium-term allocations contribute to better budgeting within the MTEF as departments and provincial governments are able to: – Accurately programme expenditure in line with policy implementation plans, thereby reducing requests for roll- overs; – Forecast medium to long-term financial implications of existing and new policies; – Implement programmes that achieve service delivery outputs in the most cost-efficient manner; and – Improve monitoring and evaluation of expenditures programmes in relation to the government’s socio-economic policy priorities. Strategic plans and costing of activities are prepared in line with Government’s medium-term policy priorities. These guide preparation of departmental budget submission and reprioritization within 3-year allocations. Departmental budget submissions are evaluated in line with Government’s priorities and recommendations on medium-term allocations made to Cabinet or the relevant provincial executive council. Once appropriated by Parliament or the relevant provincial legislature, budget allocations may be spent on activities that achieve specified outputs in support of the Government’s priorities.  Operational planning ‘In the operational plan, activities (outputs) are set which must be achieved so that the department can function effectively, efficiently and economically. The operational plan will also detail the day-to-day activities, which need to be carried out in order to achieve the objectives. The compilation of a budget for an Activity resides with the Responsibility Manager in charge of that Activity and is accountable to the Programme Manager, who in turn is accountable to the Accounting Officer and the rest of the executive management team of the Department. Care should be taken to compile a budget in order to finance the needs of the Activity in the most cost- effective, efficient and economical manner, and not to regard the budget as a “wish list”. The functions to be executed by an Activity, need to be prioritised by the Responsibility Manager, the Programme Manager and the Departmental Budget Advisory Committee, to ensure effective management according to the Operational plan and to provide for charged needs, expenditure deviations, possible budget cut-backs and to monitor performance. The first year of the strategic plan is known as the operational plan. It must provide a sufficiently detailed quantification of outputs and resources, together with service delivery indicators, for the legislature to understand exactly what it is buying’ for the community when it approves the budget.  Operational plan (cont’) The operational plan must contain: – Descriptions of the various programmes that the department will pursue to achieve its objectives, and for each programme, the measurable objectives, total cost and intended lifespan. – Information on any conditional grants to be paid or received, including the criteria to be satisfied. – Information on any new programmes to be implemented, including the justification for such programmes, expected cost, staffing and new capital, as well as future implications. – Information on any programmes to be scaled down or discontinued during the financial year. – Where two or more departments contribute to the delivery of the same service, a concise summary of the contribution of each department must be given. – Summary information, drawn from the strategic plan, of all capital investments planned for the year, including the future impact on the operating budget must be made.  Various types. Line-item based budgeting Performance based budgeting Programme budgeting and multi-year programme budgeting Zero-based budgeting  Purpose of a budget High-level objectives are classified as programmes within the budget process. A budget is the financial plan setting out how these objectives will be achieved and therefore serves the following purposes: – As a planning process (the financial part of a operational plan). – As a management process (budget serves as a plan of action). – As a process and instrument to promote financial co-ordination and order (as a result of set, measurable objectives). – As a policy-formulation instrument (determining which services should be rendered with the available funds). – As a policy-declaration instrument (statement of the financial implications of the following year’s policy). – As an instruction document (mandate of Parliament). – As a source of financial information to the community (when the budget is tabled in Parliament, it becomes a public document).  Key departmental role players in budget execution Accounting officer Chief financial officer Departmental accountants Programme managers Responsibility managers  Accounting Officer (AO) Head of State Department (Accounting Officer) must have full control. The budget execution is under direct control of the AO. Must account (give report) for all financial transactions and activities of department. Responsible for: – All functions charged to him by way of legislation and the Treasury. – Administration of budget votes under his control. – Submission of departmental annual draft budget to Treasury. – Answering all queries from state auditor involving the financial activities of the department. Functions of the AO can be divided into two main groups: – The preparation and submission of departmental draft budget to Treasury. – The execution of the approved budget of the department. The AO has to account to the Joint Standing Committee on Public Accounts for the results of the departmental budget as executed. The AO has to design and develop an internal control system to control all programmes  Chief Financial Officer (CFO) The CFO is responsible for financial control and a separate supply chain management unit in the department. Advise the AO on all financial aspects of departmental activities: – Financial policy and financial implications regarding new and altered programmes – The efficiency and cost effectiveness of existing programmes in achieving the set goals. – Wasteful practices and irregularities. – The implementation of the institution’s supply chain management system. In control of the department’s budgets by objective systems that include the continuous evaluation of objectives and their identified supporting functions. Ensure all objectives contain criteria to measure performance.  Chief Financial Officer (Continue) To ensure proper execution by line-functionaries, the CFO serve in top management to report all financial aspects. This includes: – Cost effectiveness with which set objectives are achieved. – Departmental expenditure against set objectives and allocated funds. – Advise on correctional action to be taken where necessary. Responsibilities are not confined to managing, but include administrative aspects of which the most important are: – Verifying departmental submissions to Treasury involving financial policy or budget matters. – Ensuring that a proper internal financial control system exists and functions properly. – Coordinating and ensuring training in financial, programme and objective management of the different levels of responsibility in the department. To develop and establish a positive financial philosophy Is the financial cornerstone in the department and must be in full  Departmental Accountants Proper record keeping of all financial transactions on behalf of the accounting officer. Keeping of departmental accounts based on specific procedures and rules as prescribed by Treasury. Submit appropriation account for each budget vote under control of the accounting officer to the state auditor (with a copy to Treasury) for investigation and auditing purposes.  Programme Managers Programme managers (executive management) are senior executive officers that are appointed by the Director-General as his/her delegates for the orderly administration and management of line and staff functions in a department. Efficient utilization of allocated resources, to effectively and adequately attain the objectives of their programmes. Accountable to the Departmental Budget Advisory Committee. The link between lower level executive units and top management. The management of programmes…  Responsibility (Line Function)Managers Responsibility managers head the different functional entities within a programme and are subordinate to the programme manager concerned. Administer human and physical resources in the most efficient and economical way. Functional tasks: – Determination and planning of the manner in which required services will be rendered. – Continuous evaluation to determine if the various tasks are executed correctly and in the most effective and economical way. Financial tasks: – Compilation of estimates of expected expenditure. – Compilation of a HR budget. – Determination of the financial policy and procedures to be followed. – Incur expenses in order to accomplish the functions of the department. – Budget control in coordination with the budget committee. – Manage and exercise control over state property, HR, documentation, evidence, accounting records, cash and income. In charge of the execution of line and staff functions… (the backbone!!) END.