Finance minister Trevor Manuel gets the accolades for his tight control of public spending. What he gets little credit for is the huge strides the public sector has made in following good corporate governance and accounting principles.
Along the way, he has expanded the role of the private sector in developing and executing sound accounting and auditing practices at all levels of government and state-owned enterprises.
Manuel has launched a number of strategies:
- The enactment of the Public Finance Management Act (PFMA);
- Strengthening the office of the auditor-general (AG);
- The Municipal Finance Management Act (MFMA), which is soon to be passed; and
- Closer working relationships with private-sector auditing firms.
"Government is well on the road to achieving sound governance practices and the principles encompassed in the PFMA are world-class," says PricewaterhouseCoopers deputy CEO Suresh Kana.
Backing the law is a more vigilant AG, who has to receive financial statements from departments and parastatals within two months of year-end. Previously, auditing was often delayed by a year because of late reporting.
Deloitte & Touche CE Vassi Naidoo says the AG's office has gained in standing since the implementation of the PFMA.
"They are doing some excellent work, subcontracting extensively to the private sector and getting government departments to respond to their interventions," he says.
The AG is obliged to outsource a minimum of 20% of its work to the private sector, and the lead auditors are expected to subcontract some of that to black-empowered and small firms.
An AG official says that in the 2001/2002 financial year this contract work totalled R190m, 34% of its total workload. "The number was particularly high that year as departments had to deal with the requirements of the PFMA," she says. In 2002/2003 R143m worth of audits were outsourced, just over 20% of total work.
The official says the amount of contract work passed on to the private sector depends on the AG's workload and is spread across all sectors of the public service.
The private sector also plays an important role in monitoring and improving public audits. PwC's Kana sits on the Government Accounting Standards Board, launched last December to develop and improve accounting standards in the public service.
"Much of our work is still being developed, but government is committed to introducing standards developed by the international public-sector committee of the IFAC, a global body setting accounting standards for the public sector. Our job will be to fine-tune them for SA conditions," says Kana. Already , he adds, "audit committees at parastatals are seeing their importance grow significantly".
The PFMA has given strong legal backing to sound financial management of government departments and public-sector corporations.
The legislation introduced best accounting practice into every department and province to complement the three-year budgeting process.
The PFMA also makes financial accountability a cornerstone of the performance contracts of directors-general.
The final piece in the public-sector accounting picture is the implementation of the MFMA, which is aimed at introducing sound budgeting and accounting standards at local authority level.
Kana warns that the adoption in practice of this legislation presents a huge challenge, given the scarcity of financial skills among local authorities, but he is confident that with its introduction "municipal finances will gradually move on to a sound footing".
