Public Finance Management Act, 1999 (Act No. 1 of 1999) Understanding and Using this Act Guide for Accounting Officers 7. Revenue, assets and liabilities

 

Revenue management

 

Most managers in the public sector do not derive income directly from the community in the form of charges, fees, fines, grants or levies, but receive money from a revenue fund. Revenue collected is not retained by the department but has to be paid into the relevant revenue fund.

 

Consequently, revenue management has become a low priority within departments, even those, such as Health and Transport, which levy substantial amounts of user charges each year. The Act addresses this, in part by stipulating that the undercollection of expected income may result in a reduction in the approved budget of a department.

 

Continuous review of revenue

 

Accounting officers must continuously examine their departments’ operations to identify potential or actual sources of revenue. As a minimum, a review must be conducted during the budget preparation process and form part of the initial submission to the relevant treasury. Accounting officers should identify limits to the revenue base of their departments, such as policies affecting particular sections of the community, the need for government services to reflect value for money, community expectations and the rate of inflation.

 

The tariff policy must be disclosed in the annual report; this should include details of any free services rendered but not taken into account in the budget, which could have yielded significant revenue.

 

Revenue management processes must ensure adequate separation of duties and provide for effective supervision and monitoring of revenue collected. For example, activities related to the collection, recording and banking of revenue may not be undertaken by the same person.

 

Management of debtors

 

The amount owing to a department by debtors, who have received a service but have not yet paid for it, is generally a significant current asset. The accounting officer must take effective and appropriate steps to collect all money due to the department, if necessary by instalments. This will require the accounting officer to consider the following:

 

Recording and reporting on debts

 

Each department will be expected to:

 

As people rarely pay amounts unless a claim is made, an invoice or statement must be issued to request payment as soon as possible. This will facilitate the timely collection of revenue. Failure to do so may constitute financial misconduct.

Notifications to debtors should be controlled (for example through sequentially numbered statements) and procedures should be implemented to ensure the accuracy of the information. These could include the establishment and maintenance of control accounts, and regular and independent checks to ensure that the total of each individual account balances with the control account total.

 

Each month, an age analysis should be produced by type of debt. This should include detailed listings to allow follow-up on individual accounts. These reports should also include data summarised according to the overall collection performance.

 

Collection of debts

 

Collection measures should be progressive and include the following routine actions:

 

Departments may use private sector agencies to trace debtors when their normal tracing activities fail. Any related costs should be borne by the debtor and not the department. Cases referred to tracing agencies shall be on a ‘no trace – no pay’ basis.

 

Debt write-offs

 

Should an accounting officer have taken all reasonable steps to recover a debt, yet have been unsuccessful (or have determined that it would be to the state’s advantage to waive a claim), he or she may write off the debt. This must be disclosed in the annual financial statements, indicating the policy followed.

 

Asset management

 

Assets are items, such as buildings, which will be used in the delivery of services for a number of years. Departments should hold only those assets that are necessary for the efficient, effective and economical delivery of its programmes. Assets are investments in the delivery of future services to communities and generally affect the operating budget. Therefore, accounting officers must plan properly for the acquisition of assets, and consider alternative strategies such as:

 

Asset records, asset management and financial reporting

 

Accounting officers are unlikely to be able to safeguard and effectively utilise their department’s assets in the absence of proper accounts and records, as required by section 40 of the Act.

 

Writing-off of losses and debt recovery

 

The treatment of losses clearly illustrates how the approach in the PFMA differs from that in the Exchequer Act. Losses inevitably occur in the day-to-day operation of government activity, for example through vehicle accidents. The previous Treasury Instructions, which ran to almost 20 pages on this issue, effectively achieved the opposite of what was intended – they undermined accountability by placing the decision to write off an irrecoverable loss in the hands of a Treasury official, rather than in the hands of the management of the department concerned. The new Regulations placed this responsibility where it belongs: on the accounting officer. Chapter 12 of the Regulations explains the principles to be followed; these are summarised below:

 

Liability management

 

A liability is an item that will eventually become expenditure. A department may incur liabilities in different ways, including through employee entitlements, leases, or receiving revenue before goods and services have been delivered.

The accounting officer must ensure that, just as for expenditure, liabilities are incurred only for authorised purposes and only after the normal approval procedures have been followed. The relevant details of any liability must be recorded, and liabilities outstanding at the end of the financial year must be reflected in the financial statements.

 

Loans, borrowing and guarantees

 

Departments may not borrow money, issue guarantees, indemnities or securities or enter into transactions that bind the revenue fund to a future commitment unless authorised by the PFMA or the Borrowing Powers of Provincial Governments Act.

No person in a provincial department may issue a guarantee, security or indemnity that may bind the provincial revenue fund, except with the prior written approval of the relevant MEC for finance.

 

Financial misconduct for issuing guarantee

 

The accounting officer of a department must ensure that no person borrows money on behalf of that department or issues an unauthorised guarantee, security or indemnity. Any transgression must result in disciplinary proceedings.

The accounting officer must report on all the department’s contingent liabilities in the annual report.