In the public sector, budgeting and forecasting are essential skills for any financial professional. It is critical to demonstrate ability to plan, monitor, and adjust financial resources and goals based on various scenarios and data.
When budgets are prepared, realistic assessments must be done by account and line item. This approach ensures accurate comparisons for informed decision making.
Defining evaluation criteria is a critical phase in the financial management process. This allows departments and entities to establish a clear and objective framework for measuring the success or effectiveness of their projections and budget. Criteria such as accuracy, reliability, timeliness, completeness, relevance and alignment with strategic objectives are fundamental to a complete and meaningful evaluation.
One of the most common ways to measure and evaluate a budget and forecast performance is to compare the actual and expected outcomes of financial activities. Various tools and techniques can be used to do this, such as variance analysis, trend analysis, ratio analysis, and benchmarking.
Officials should be able to explain the reasons for any significant differences between actual and expected outcomes, along with actions taken or to be taken to correct or improve them.
Most often, finance professionals are faced with self-bias when it comes to budget preparation and forecast, thus, coming up with safe budgets and forecasts with a slim error margin – bearing in mind performance appraisal and evaluation at the end of the financial period. One ought to understand the fundamentals underlying department or entity average and the growth envisaged by the department or entity before coming up with a budget and forecast as they have to conform with set goals of the government.
It is essential to measure and evaluate a budget and forecast performance in order to assess the impact and value on a department. Different measures to do this, such as return on investment, net present value, internal rate of return, and payback period can be used. Officials should be able to demonstrate how budgets and forecasts can help their department or entity achieve its financial goals, optimize its resources, and create value for its beneficiaries.
Against the backdrop of this ‘Budgeting Assessment 101’ lecture I now come to the 2024 Mid-Year Budget Performance reviews. Unfortunately, the lessons above have clearly not been learnt by officials that account to KZN’s Legislature.
On 26 August, I issued a press statement reflecting on the desperate need to curb spending in KZN, in order to avoid a massive shortfall. I also reflected on the plans by Finance MEC, Francois Rodgers, to drastically cut runaway spending in terms of KZN government travel and other related costs.
This expenditure by the previous administration took place in the context of dire poverty, infrastructure decay and declining service delivery in KZN. Not only was this a slap in the face to our province’s people, it is also reckless given the massive budget cuts imposed by National Treasury.
I warned at the time that when families and businesses alike are facing the financial crunch and are being forced to reprioritise their finances – the leaders of our province must do the same.
MEC Rodgers has led by example, closing a redundant treasury office in Durban, cutting his own vehicle fleet by half and cutting back on costly stationery, including banners and glossy booklets, and staying in guest houses instead of luxury hotel suites.
MEC Rodgers has been persistent in his efforts to the point that KZN’s government of provincial unity (GPU) has announced a series of stringent cost-cutting measures to tackle the province’s escalating budget deficit, currently projected to reach R9 billion by the end of the financial year.
Provincial Treasury said the cuts would lead to an estimated R3 billion cost-saving. These cuts include significant reductions in subsistence and travel expenses, international travel, vehicle rentals, functions, and catering. These cuts were intended to offset financial strain that has led to growing accruals and the province’s difficulty in paying suppliers within the legally mandated 30-day period.
The DA welcomes the GPU’s focus on job creation, poverty reduction, and frontline service delivery in sectors such as education and health. It is therefore of great concern that, following the recently completed mid-term budget performance reviews, that KZN’s Finance portfolio committee discovered that total spending for the first six months was R77.387 billion – with the province showing projected over-spending of R8.172 billion at the end of the financial year. The bulk of the projected overspending is reflected by the Department of Health (DoH) at R4.705 billion and the Department of Education (DoE) at R2.360 billion, primarily due to unfunded national wage agreements.
A related and disturbing trend is that many departments and entities are budgeting to fill vacancies and then using those funds to cover other costs. To make matters worse, the hearings have also revealed that revenue collection for the year will also not pass muster.
The DA calls on all KZN’s MECs and senior departmental officials to have a hard look at their departmental expenditure and vigorously remove the weeds of corruption and excess. The time for decisive action is now. In time, KZN will realise that less money spent on luxuries will mean more is available for the hard-pressed residents of our province.
The DA will remain at the frontline when it comes to arguing for strict financial governance and will not flinch in calling for decisive action against those who do not heed this call. KZN’s people deserve a government that puts them first, financially and otherwise.