FINANCIAL AND FISCAL COMMISSION

1. 1 FINANCIAL AND FISCAL COMMISSION 2006/2007 ANNUAL REPORT

2. 2 Table of Contents

3. 3 Constitutional Mandate Section 220 - An independent and impartial advisory institution within the South African intergovernmental fiscal relations system Section 214 � The recommendations of the FFC must be considered in the formulation of legislation providing for the equitable division of revenue between the three (3) tiers of government Section 218 � National legislation relating to provincial and municipal guarantees may only be enacted after recommendations from the FFC have been considered Sections 228, 229 and 230 � Legislation relating to provincial taxes, municipal fiscal powers and functions, as well as provincial and municipal loans may only be enacted after recommendations from the FFC have been considered Section 220 Independent and impartial Operates within the IGFR System Section 214 Its recommendations must be considered in formulating legislation relating to the Division of Revenue Section 218 National legislation relating to provincial taxes and municipal guarantees may only be enacted after considering recommendations from the FFC Sections 228, 229 and 230 Legislation relating to Provincial taxes, municipal fiscal powers and functions, provincial and municipal loans may be passed after considering recommendations from the FFCSection 220 Independent and impartial Operates within the IGFR System Section 214 Its recommendations must be considered in formulating legislation relating to the Division of Revenue Section 218 National legislation relating to provincial taxes and municipal guarantees may only be enacted after considering recommendations from the FFC Sections 228, 229 and 230 Legislation relating to Provincial taxes, municipal fiscal powers and functions, provincial and municipal loans may be passed after considering recommendations from the FFC

4. 4 Legislative Mandate Section 9 of the Municipal Systems Act � The assessment of the FFC must be obtained when a function or power is assigned by national or provincial government to local government Section 3 of the Financial and Fiscal Commission Amendment Act of 2003 � The FFC must provide advice regarding the assignment of a function or power between any of the spheres of government Section 4 of the Local Government: Municipal Finance Management Act � The FFC must comment in writing on any draft legislation directly or indirectly amending this Act Section 9 of the Municipal Systems Act An assessment by the FFC is required before a function is shifted to local government by a national or provincial sphere of government Section 3 of the Financial and Fiscal Commission Amendment Act The advice of the FFC has to be sought before a function is shifted between any spheres of government Section 4 of the Local Government Municipal Finance Management Act The FFC must comment in writing on any legislation amending this ActSection 9 of the Municipal Systems Act An assessment by the FFC is required before a function is shifted to local government by a national or provincial sphere of government Section 3 of the Financial and Fiscal Commission Amendment Act The advice of the FFC has to be sought before a function is shifted between any spheres of government Section 4 of the Local Government Municipal Finance Management Act The FFC must comment in writing on any legislation amending this Act

5. 5 Performance Against Objectives Governance and Accountability Good progress being made Operational Policies in place Stakeholder Relations Progress has been made Protocols, procedures and policies being improved and in some cases being developedGovernance and Accountability Good progress being made Operational Policies in place Stakeholder Relations Progress has been made Protocols, procedures and policies being improved and in some cases being developed

6. 6 Performance Against Objectives Slide 5 Compliance Compliance systems being developed and in some cases being improved (HIV/AIDS, BEE) Senior Management: There is a historical scarcity of suitably qualified personnel. Targeted recruitment which initial costing places at approximately R1m per position appears to be the only option. An additional challenge is the inability of the FFC to offer competitive remuneration packages. Financial constraints remain prohibitive. Slide 5 Compliance Compliance systems being developed and in some cases being improved (HIV/AIDS, BEE) Senior Management: There is a historical scarcity of suitably qualified personnel. Targeted recruitment which initial costing places at approximately R1m per position appears to be the only option. An additional challenge is the inability of the FFC to offer competitive remuneration packages. Financial constraints remain prohibitive.

7. 7 Performance Against Objectives Division of Revenue The division of revenue continues to be our mandatory priority areas FFC has commented on the Division of Revenue Bill The FFC continues to give priority to ad hoc requests for advisories despite limited institutional capacity Division of Revenue The division of revenue continues to be our mandatory priority areas FFC has commented on the Division of Revenue Bill The FFC continues to give priority to ad hoc requests for advisories despite limited institutional capacity

8. 8 Performance Against Objectives

9. 9 Performance Against Objectives Annual Report The Annual Report was submitted on timeAnnual Report The Annual Report was submitted on time

10. 10 2007 Submission on the Division of Revenue Conditional Grants These were responsible for a substantial proportion of our research for the reporting period Valuable comments and recommendations were made Made recommendations on among others the HIV/AIDS Grant; the Hospital Revitalisation Grant; the National Schools Nutrition Grant; and the MIGConditional Grants These were responsible for a substantial proportion of our research for the reporting period Valuable comments and recommendations were made Made recommendations on among others the HIV/AIDS Grant; the Hospital Revitalisation Grant; the National Schools Nutrition Grant; and the MIG

11. 11 2007 Submission on the Division of Revenue National Tertiary Services Grant Recommended for the introduction of an allocation framework based on approved norms and standards which are based in turn on explicit service plans Recommended further that Service Plans should include all level 1 services for hospitals Recommended that a dedicated unit should be established for providing technical; assistance for administering the GrantNational Tertiary Services Grant Recommended for the introduction of an allocation framework based on approved norms and standards which are based in turn on explicit service plans Recommended further that Service Plans should include all level 1 services for hospitals Recommended that a dedicated unit should be established for providing technical; assistance for administering the Grant

12. 12 2007 Submission on the Division of Revenue National Housing Allocation Formula Recommended that formula should take into account provincial disabilities Recommended that provision of housing should keep people in vicinity of infrastructure and economic activity National Housing Allocation Formula Rapid delivery of housing should not compromise quality Incorporation of Social Welfare Component into PES Recommended that a social welfare component be incorporated in the PES Formula Component to take into account: Population in poverty Institutional capacity Provincial Own Revenue No specific recommendation made Progress being made I the implementation of the Provincial Tax Regulation Act Previous recommendations in terms of structures and systems being implemented National Housing Allocation Formula Recommended that formula should take into account provincial disabilities Recommended that provision of housing should keep people in vicinity of infrastructure and economic activity National Housing Allocation Formula Rapid delivery of housing should not compromise quality Incorporation of Social Welfare Component into PES Recommended that a social welfare component be incorporated in the PES Formula Component to take into account: Population in poverty Institutional capacity Provincial Own Revenue No specific recommendation made Progress being made I the implementation of the Provincial Tax Regulation Act Previous recommendations in terms of structures and systems being implemented

13. 13 Management Strategic and Business Planning

14. 14 Strategy and Business Planning Background FCC undertook a Strategy and Business Planning exercise in 2004/2005 Outcomes not dissimilar to those achieved in terms of the 2006/2007 Strategy Review exercise Difference lies in the holistic approach of the 2007 Strategy Review, its intensity, as well as the far reaching and forward looking nature and extent of its outcomes Both exercises remain loyal to the Constitutional and Legislative Mandates of the FFC Justification The 2007 exercise was necessitated by a change in Management and the need to establish whether in fact the 2004/2005 outcomes and business plans were in line with the views of current Management in terms of: strategic visioning (alignment of vision and mission; anticipatory change; learning environment; brand equity) quality focus (research excellence, continuous improvement, commitment to quality, structured processes), value creation (proper prospectus, impact of decisions, capacity breakthroughs, scenario development) stakeholder focus (stakeholder involvement; stakeholder buy-in; right first time, on time and every time;, rapid response), diversity of issues leadership (organisational climate, organisational morale and structure, performance management, staff empowerment) and resources and capabilities (funding, talent, alliance resources, important technologies, facilities and infrastructure) The FFC undertook a strategy and business planning exercise in 2004/2005 The FFC undertook another one in 2006/2007 Results were not dissimilar Difference in terms of holistic approach of the 2006/2007 exercise, its intensity and its forward looking perspective Both approaches remain loyal to the constitutional and legislative mandates of the FFCThe FFC undertook a strategy and business planning exercise in 2004/2005 The FFC undertook another one in 2006/2007 Results were not dissimilar Difference in terms of holistic approach of the 2006/2007 exercise, its intensity and its forward looking perspective Both approaches remain loyal to the constitutional and legislative mandates of the FFC

15. 15 Strategy and Business Planning Common Factors Common Factors Strengths Talk to slide Important elements Strategy Governance Systems Stakeholders Budgeting Capacity Stakeholders Prioritisation of stakeholders highlighted in both exercises Budgeting Both exercises raised issues of Budget sufficiency The need to align budget with strategy Performance Budgeting Capacity Consists of three (3) elements Governance Skills MindsetCommon Factors Strengths Talk to slide Important elements Strategy Governance Systems Stakeholders Budgeting Capacity Stakeholders Prioritisation of stakeholders highlighted in both exercises Budgeting Both exercises raised issues of Budget sufficiency The need to align budget with strategy Performance Budgeting Capacity Consists of three (3) elements Governance Skills Mindset

16. 16 Strategy and Business Planning Differences Differences Talk to slide Both reactive and proactive Scenario planningDifferences Talk to slide Both reactive and proactive Scenario planning

17. 17 Strategy and Business Planning Challenges in Implementation: 2005 � 2008 and 2007/ 2008 � 2011 Strategies and Business Plans Challenges Identified by Both Capacity Excessive outsourcing Strategy and Budgets Budgets inform strategy instead of vice versa Systems antiquated No knowledge management capabilityChallenges Identified by Both Capacity Excessive outsourcing Strategy and Budgets Budgets inform strategy instead of vice versa Systems antiquated No knowledge management capability

18. 18 Strategy and Business Planning Interventions: Implementation of 2005 � 2008 and 2007/ 2008 � 2011 Strategies and Business Plans Interventions: Capacity Human Resource Strategy � On hold Retention Strategy � On hold Corporate Capacity � Executive Manager; Management Accountant; Knowledge MANAGEMENT Specialist; Publications Specialist Interventions: Capacity Human Resource Strategy � On hold Retention Strategy � On hold Corporate Capacity � Executive Manager; Management Accountant; Knowledge MANAGEMENT Specialist; Publications Specialist

19. 19 Strategy and Business Planning Interventions: Implementation of 2005 � 2008 and 2007/ 2008 � 2011 Strategies and Business Plans Governance and Structure Proper delegations Internal communication flows Prospectus development Institutionalisation of knowledge management Systems See SlideGovernance and Structure Proper delegations Internal communication flows Prospectus development Institutionalisation of knowledge management Systems See Slide

20. 20 Management Expenditure

21. 21 Expenditure 2006/2007 In line with its 2005 � 2008 Strategic Objectives, a significant portion of the allocation for the 2006/2007 FY was expended on personnel and research costs Various cost saving measures (the internalising of capacity being the most notable) were employed to ensure that the priorities stated in the budget were met Initiatives such as institution and capacity building do, however, still require substantial additional funds Despite all efforts to ensure that the FFC was able to honour its statutory obligations within the financial constraints of its MTEF allocation, the FFC recorded a net deficit of R 3 039 998 The Commission did comply with the provisions of Section 39(2)(b)(ii) and 40(5) of the PFMA in that National Treasury was advised of the possible deficit, the reasons therefore, and the steps that were being considered to deal with it. The deficit was attributable among others to the following post Adjustment Estimates and MTEF processes:

22. 22 Expenditure Schedule: Deficit 2006/2007

23. 23 2006/2007 Expenditure Schedule - Changes

24. 24 Personnel Cost Analysis 2006/2007

25. 25 Personnel Cost Analysis 2006/2007

26. 26 2006/2007 Recruits

27. 27 2006/2007 Reorganisation

28. 28 2006/2007 Resignations

29. 29 Salaries by Job Status

30. 30 Management Risk

31. 31 Risk A Comprehensive Risk Management Framework has been developed and some aspects are already being implemented. It covers: All financial and non-financial risks All the issues raised by the Internal Auditor as well as the Auditor-General Issues of staff turnover will be addressed in terms of A Remuneration Strategy A Remuneration Policy A Retention Policy A Customised Pay Scale A re-grading exercise to bring all positions in line with the newly developed Remuneration Strategy, the Retention Policy, the Remuneration Policy and the Customised Pay Scale Employee empowerment, a move away from an authoritarian culture, and the ongoing training of Managers in people management . Gender equity issues at Senior Management level will be addressed in terms of targeted (but expensive) recruitment strategies and in terms of the FFC�s current Employment Equity Plan. Progress in implementation of the Plan has been rated as reasonable by the Director General: Labour in the most recent Department of Labour Assessment

32. 32 Risk The Finance Department has been restructured to deal with emerging challenges and a growing organisation, and additional specialist capacity has either been brought in or is in the process of being sourced Specialist management accountant capacity has already been employed and this will serve to eliminate challenges relating among others to reconciliations Specialist supply chain management capacity will be sourced as soon as funds become available As earlier stated, stakeholder requests will only be accommodated if budgeted for, accompanied by ring-fenced funding or if cost recovery becomes an option open to the FFC Financial management systems have been upgraded, delegations revisited, compliance made a priority, and proper budgeting processes introduced The reduce reliance on outsourced capacity and build internal capacity thereby not only minimising costs, encouraging the development of in-house talent but will also enhancing the quality of service delivery The breadth and depth of analysis in research will be assured through the resources that are now available in the recently re-commissioned Library which now has knowledge and enterprise content management capacity both of which serve to promote knowledge sharing and preserve institutional memory The relevance and timeliness of research output will be assured through ongoing environmental scanning by the offices of the external stakeholder management function and the institutionalisation of two-way communication The quality of research outputs will be assured through the entrenchment of research ethics and the introduction of a double-blind peer review mechanism

33. 33 Management Finances

34. 34 Finances The FFC has been given an unqualified audit report by the Auditor-General for the 2006/2007 FY The Auditor-General did however raise �Going Concern� as a matter of emphasis in the the light of the deficit that was recorded by the FFC

35. 35 Conclusion The format and extent of the Report has changed to: Reflect not only what past strategies, plans and budgets have achieved and/or not achieved, but also to give stakeholders an informed view of how the FFC intends to generate and deliver optimal value going forward Bring it more in line with the requirements of the Auditor-General and National Treasury regarding reporting

36. 36 Pillars of Organisational Capacity

37. 37 Pillars of Organisational Capacity