COST CONTAINMENT MEASURES

OFFICE OF THE ACCOUNTANT-GENERAL

Presenter: Jonas Shai | Office of the Accountant General, RMS | August 2014

Spirit of the Instruction

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Outline

• Background

• Current Climate

• Why the CRO and Expectation

• Treasury Instruction

• Conclusion

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• Section 38(1)(c)(iii) and 51(1)(b)(iii) of the PFMA – accounting officers

and accounting authorities must manage available working capital

efficiently and economically;

• Accounting officers and accounting authorities – ensure key expenditure

control measures are in place and working as planned;

• Cabinet resolution of 23 October 2013 - all public sector institutions to

contain operational costs and eliminate all non-essential expenditure;

Background

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Current Climate

• Quarterly Labour Force Survey: Unemployment rate 25.5 per cent.

• Consumer inflation: 6.6 per cent

• Labour unrest

• NDP: alignment of allocation of resources & strategic objective

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Why the CRO?

• Risk-Based – Risk assessments– Internal Audit rely on this for their work

• Protect your organisation

• Protect your Accounting Officer/Authority

• Key focus/audit area

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Risk Universe

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Expectation

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Source: EY : Expecting More from Risk Management

Expectation

• Understanding of the whole business– All assessment sessions should be speaking this language

• This is not a CFO instruction– Silo mentality demolishing

• Advice on process design– Review of system descriptions/ operating procedures

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Expectation

• Ability to identify “what could go wrong”

– Risk Assessment process

• Ability to identify assertion deficiencies

– Occurrence, Completeness, Accuracy, Cut-off

• Ability to suggest process improvements

– E.g. King Code: Information Technology

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Engagement of Consultants

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Engagement of Consultants

• Gap analysis

– Innovation and area of efficiency gains

• Rates payable

– Assist Internal audit’s risk based plans

• Penalty clauses in contracts to curb poor performance;

– Risk Monitoring Activities

• Consultancy reduction plans before 31 March of each year;

– Risk Monitoring Activities

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Risk Monitoring Activities

• Chapter 9

• Allocated responsibilities are being executed effectively

• Response strategies are producing the desired result of mitigating risks or exploiting opportunities; and

• A positive correlation exists between improvements in the system of risk management and institutional performance

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Travel and subsistence

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Travel and Subsistence

• Domestic hotel accommodation

– Ask the question

– Review of the process/documentation design

• Car hire – Only Group B or any other lower class of vehicle

– Ask the question

– Review of the process/documentation design

• Flights

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Travel and Subsistence

• Official or Parliamentary duties – limited to 3 employees– How many of you are here

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Credit/ Debit Cards

• Amendment to Treasury Regulation 15.10.3 & 31.2

• Prohibit use of credit or debit card

• May retain or obtain credit or debit card for other specific purposes

• National Treasury may grant exemption

– Ask the question during risk assessments

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Catering and Events Expenses

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Catering and Events Expenses

• No catering for internal meetings, unless approved by AO or AA;

• Entertainment allowance – may not exceed R2000 per financial year;

• Team building exercises and year-end functions;

• In-house strategic, corporate and related planning sessions;

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Guidelines on Cost Containment

• Travel and Subsistence

• Limiting international travel only for meetings – absolutely essential;

• Using corporate voyager miles to acquire air tickets;

• Three quotes for all international travel;

• Prohibit claims for meals if already included in hotel arrangements;

• Inventory

• Bulk purchases of related items;

• Settlement discounts;

• Full cost recovery on promotional items;

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Guidelines on Cost Containment

Inventory- continued

• Minimizing printing costs;

• Use of electronic mail other than registered mail;

• Prohibit of newspaper and magazine allowances, existing contracts

not to be renewed;

• Water and Electricity

• Prudent use to lower utility costs;

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• Communications

• Private calls – Limit allowances to reasonable value;

• Cellular phones and 3G – Consider nature of work;

• Telephone calls – Distinguish between private and official calls;

• Tele and/or video conferencing – To avoid travel and subsistence

costs;

• Financial assets

• Debts write-off – limit - impact on savings;

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Guidelines on Cost Containment

• Miscellaneous measures

• Avoid duplication of activities, processes and efforts;

• Optimize capacity use of machines by sharing between divisions;

• Extend warranties – Motor vehicles and computer equipment;

• Prohibit unnecessary new furniture or office refurbishments;

• E-learning – In-house training;

• Transversal contracts – Procurement of goods and services;

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Guidelines on Cost Containment

• AO and AA - appropriate expenditure control measures in their

respective institutions;

• Limited resources be applied effectively and efficiently to achieve

economic means;

• Institutions to implement measures to contain operational costs and to

eliminate all non-essential expenditure;

• The Treasury Instruction note is applicable to all public sector institutions

- Effective from 01 December 2013;

Conclusion

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• Technical Queries with regards to the Instruction

Jayce Nair

Chief Director

Office of the Accountant General

oagqueries@treasury.gov.za

(012) 315 5482

Questions and Answers

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