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Developing Financial Management Capacity in South African Municipalities – A Basis for Local Development

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published
13 January 2017

 When you think about development challenges, a lack of trained accountants might not immediately come to mind. Yet poor public sector financial management is often at the root of patchy service delivery in other sectors, from health and education to transport. South Africa recognised this underlying issue, and with EU support embarked on a capacity development programme.

The EU-funded Finance Management Improvement Programme (FMIP-III), now in its third iteration, aims to assist the South African government to develop institutional, organizational and individual capacity in public finance management, and to develop partnerships with training bodies and other stakeholders. The hoped-for result: better staff retention and skills; more efficient municipalities; and better value for money across government spending.

“This programme builds on more than 20 years of cooperation with the National Treasury,” said Jean-Bernard De Milito, Cooperation Attaché at the EU Delegation to South Africa. The initial programme, FMIP-I, was signed in 1998 for ECU 12 million, followed by the €8 million FMIP-II in 2006 and the €20 million FMIP-III in 2012.

“FMIP has been institutionalised within the Office of the Accountant General (OAG) and is very closely associated with the Capacity Development Strategy of the National Treasury. These 20 years of cooperation really count and weigh in the balance,” said De Milito.

One of the urgent issues was a shortage of trained staff to manage South Africa's provincial and municipal finances, supply chains management, contract management, accounting and auditing. One-third of these posts were unfilled in 2010, with many vacancies for senior management positions. This put extra pressure on the existing staff – contributing to an average staff turnover of 14.6 months.

It also meant poor quality or ineffective service delivery. Many municipalities were unable to pay invoices to creditors on time, making some stakeholders reluctant to partner with local government. Several municipalities regularly received ‘disclaimers’ on their accounts from auditors – the lowest rating, indicating that their finances were not in order.

 

 

 

Skip to 0:05 for Newton Stoffels outlining FMIP-III; 0:55 for Jeffrey Hlongwane on the challenges it seeks to address; 1:43 for Motseoa Lugemwa on how it is structured and 3:21 on the role of political leadership; 4:21 for Newton Stoffels on the funding mix; and 5:00 for Jeffrey Hlongwane and Motseoa Lugemwa on next steps.

Developing Municipal Capacity

The underlying challenge, according to Jeffrey Hlongwane from the Capacity Building Directorate at the National Treasury, is that “the administration machinery of the government is not effective and efficient.”

“We want to take public administration to the next level in all spheres of government,” said Hlongwane. “Finance has always been treated as an isolated activity, but it’s part one, the most important ingredient which can contribute to the success of government.” The specific challenges vary across municipalities, but the most common issues were:

  • a lack of in-house staff training and development programmes
  • ineffective performance management
  • limited knowledge management within offices
  • inadequate monitoring and evaluation
  • failure to adhere to legislation

“What we did as Treasury was a capacity development strategy - an integrated approach to achieve excellence in financial management, which can be translated into quality service delivery, and the development and growth of the economy,” said Hlongwane. “It focuses on discipline within financial management – budgeting, accounting, risk management, internal audit, asset management and supply chain management.” These areas interlock so closely they are like a financial management Rubik’s cube – pictured right.

FMIP-III provides support at national, provincial and municipal levels. This article will focus on support to municipalities – one of the six components of FMIP-III.

FMIP-III is running in eight municipalities in South Africa’s North West province which requested support: Dr Ruth Mompati, Naledi, Moses Kotane, Ramotshere Moiloa, Ventersdorp, Kgetleng Rivier, Mamusa and Greater Taung. Through the programme, the National Treasury sends an advisor to become resident in each municipality for up to two and a half years, training staff and supporting organisational change.

In order to be included in the programme, municipalities need a minimum level of financial capacity to begin with. “It’s a capacity building programme, so there have to be people in place to receive that training,” explained Motseoa Lugemwa, the programme’s municipal coordinator. “There has to be a Municipal Manager and Chief Financial Officer in place, and staff within the budget and treasury offices.”

Even where these positions were filled, staff capacity to fulfil their roles was often below par. “There were very limited skills in local government in South Africa,” said Lugemwa. “They often had a lot of people placed in the wrong positions. Imagine training someone who has never done accounting, who is supposed to be handling payroll and salary. He or she can’t do anything.”

According to the South African Institute of Chartered Accountants, only 1.6% of accountant posts in the public sector were filled by registered professionals in 2008, compared to 11.5% in the private sector. (The difference can be put down to more competitive remuneration, and negative perceptions of working in the public sector.) Vacancy rates in the public sector in 2010 averaged 31% for finance positions, 36% for supply chain management, 39% for internal audit and 44% for risk management, according to the National Treasury.

“The programme was designed to allow flexibility, and different municipalities to progress at different paces, allowing advisors to adapt to the circumstances,” said Lugemwa. The situation at Moses Kotane municipality was especially challenging. “The advisor spent a lot of time teaching people,” said Lugemwa, and although the municipality participated well in the programme, too much reliance was placed on the advisor for operational tasks that should have been undertaken by the CFO and officials.

Nevertheless, by the end of the programme Moses Kotane had fully implemented the municipal support plan and improved areas including preparation of payroll reconciliations, clearing of suspense accounts and preparation of procedure manuals. They also worked with the technical division to improve spending on the Municipal Infrastructure Grant (MIG), and improved overall compliance with the Municipal Finance Management Act.

Political Leadership

For Lugemwa, the factor which makes the difference between a good programme and a transformative one is political leadership in the municipality.

In Ramotshere Moiloa municipality, the mayor, Alfred Thale, was there “at every visit, championing the support programme and supporting change management,” said Lugemwa. He ensured that all the staff attended the meetings, including counsellors and the Municipal Manager.

“Everyone was there, and they knew where they were going,” said Lugemwa. “At the first visit, they told us that through this programme they wanted to move from a disclaimer to a qualified audit opinion.” That is, from having their financial statements turned down by auditors, to having them generally accepted as fair and representative with only minor reservations.

“They knew what they wanted, so they achieved that,” said Lugemwa. In the following financial year, 2014-15, the municipality went a step further, achieving an unqualified (or clean) audit opinion, meaning the auditor was completely satisfied.

“So my thinking is for the Treasury going forward, they should really engage the beneficiaries, let them get a good picture of what they want to change. If they don’t, it will just be dumping money,” said Lugemwa. “Once they know where they are going, you are able to give support because they are going to a particular destination.”

In-house training

Another important factor was engaging with interns, and helping them to be absorbed into salaried roles. At Mamusa municipality, “because they never had enough funding, positions which were vacant were occupied by interns,” said Lugemwa. “The interns were like other staff members - they have been there for years.” But many did not have all the necessary skills for the job, nor access to training.

The advisor at Mamusa, Hastings Mugadza, developed ‘Lunch & Learn’ sessions specifically for interns. “They have that drive to learn, so the advisor decided to take money from his own pocket during lunch, and tailor-make trainings,” said Lugemwa. “The CFO would come, the Municipal Manager, and they would go through double entry systems, and discuss entries based on the work they were doing.”

A measure of the quality of the training was that some of these interns were then poached by other municipalities, with one being hired as Supply Chain Manager at Greater Taung Local Municipality. However it also points to the wider issue of the very small pool of trained professionals which both public and private sector can draw on.

An in-house Chartered Accountant Academy in the National Treasury is beginning to address this. “It allows students to complete their Chartered Accountant qualification within a public sector specialisation,” said Newton Stoffels, Programme Director of FMIP-III, based in the National Treasury’s Office of the Accountant-General.

The National Treasury’s accountancy qualification is especially useful for future employees, as few external qualifications currently cater to the specific requirements of public sector financial roles. These have become more demanding since legislation such as the 1999 Public Finance Management Act and the 2003 Municipal Finance Management Act, along with a government move to decentralise procurement, making accounting officers responsible for resources at a municipal level.

“International experience adds tremendous value,” said Stoffels. “For the first time, the EU supported the sending of three candidates on a study trip to Washington.” To hear about the trainees' experience and the lessons they brought home, see video:

 

 

 

Skip to 1:01 for local tax collection; 1:41 for single audit and audit findings; 2:16 for independent CFOs; 3:01 for University Savings Plan; 3:52 for a Quick Payment Act; 4:37 for a citizen’s guide; 5:10 for balancing the budget; and 5:48 for debt restructuring.

To ensure that staff skills remain relevant, the strategy includes regular opportunities for review and updating. “It’s a living document,” said Stoffels. “It should be an organic strategy […] to ensure officials are upskilled for effective governance in terms of public finance.” The goal is for municipalities to become learning organisations which support ongoing staff development - helping them retain and motivate employees, and improve services and value for money for local communities into the future.

According to De Milito, the programme could be replicated in other countries, as long as the content, scope and reach are tailored to the context. “FMIP's architecture reflects the sophistication of the PFM system in South Africa and therefore to copy/paste this programme and implement it in other countries might not be immediately possible and feasible,” said De Milito.

“The bottom line is: what really matters for both institutions is the level of partnership, trust, confidence and ability to deliver.”

Jean-Bernard De Milito: Lessons learned from FMIP in South Africa
  • Sustainability can only be ensured by relevant National Treasury regulatory and policy owners
  • All projects must be managed inside the National Treasury, or Provincial Treasuries where applicable
  • Communication and visibility (ICT tools) must be enhanced
  • Internal approval arrangements delay turn-around times; alternative approaches must be investigated
  • Coordinate donor funding – avoid overlap, duplication and double dipping
  • Increase the National Treasury’s analytical, research and development capacity 
  • Build on cross functional skills
  • Build IT internal capacity (e-strategist, e-Transformation, Knowledge Economy)
  • No more frameworks, but focus on practical tools
  • Assess reporting costs versus real improvements
  • Assess the too technical and lengthy deliverables and products
  • Provide oversight to measure rate of return, value added and value for money

Further Reading & Viewing

This collaborative piece was drafted with input from Jean-Bernard de Milito and Motseoa Lugemwa, with support from the capacity4dev Coordination Team.

DISCLAIMER: This information is provided in the interests of knowledge sharing and capacity development and should not be interpreted as the official view of the European Commission, or any other organisation.

Comments

This program was hands on at the municipality as a way of addressing the lack of capacity in public finance management in the public sector. It is my view that public university would be better placed to administer the qualification of chartered public accountants than the national treasury. The role of training would take up the space to be occured by Universities which provide training that are relevant to the job market. There is a need for close collaboration between the two institutions as a way of better utilising government resources. 

 

The recommendation of an independent CFO come as a remedy for interference of politician on public financial management. I want to know how it was done in south Africa. How do the legislation ensure that the power of the  sub national legislation is not taken away when the CFO is independent to perform his duties.

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