Public financial management crisis – What role for universities?

Shortly after the establishment of the new democratic order in 1994, South Africa embarked on a process of public management reform in which public sector financial management was given particular attention. Two important products of this process are the Public Finance Management Act (PFMA), enacted in 1999, and the Local Government: Municipal Finance Management Act (MFMA) enacted in 2003. The PFMA applies to the national and provincial spheres of government, and the MFMA applies to the local sphere.

The stated purpose of the PFMA is “to regulate financial management in the national government and provincial governments; to ensure that all revenue, expenditure, assets and liabilities of those governments are managed efficiently and effectively; to provide for the responsibilities of persons entrusted with financial management in those governments…” in order to “secure transparency, accountability, and sound management of the revenue, expenditure, assets and liabilities of the institutions to which it applies”.

While the MFMA differs considerably from the PFMA in detail, it shares the same broad objectives of promoting effective, efficient, transparent and accountable public sector financial management. Between the two of them, the PFMA and the MFMA constitute the essential framework for financial management in the public sector.

Bleak picture

One might have thought that, with the advantage of having (what is by most accounts) a best-practice financial management system underpinned by a comprehensive, sophisticated legislative framework, sound public financial management in South Africa would prevail.

Sadly, this is not the case. Every year, the Office of the Auditor-General, which is the supreme audit institution in South Africa, audits and reports on all national and provincial government departments and municipalities. Year after year, the reports paint a bleak picture of financial management in all three spheres.

Commenting on the outcomes of the consolidated audit reports for national and provincial government for the most recent financial year (2017-18), the Auditor-General observed that “overall, the audit outcomes regressed”; “only 99 (25%) of the auditees managed to produce quality financial statements and performance reports and to comply with key legislation”; “there were serious weaknesses in the financial management of national and provincial government that had not been addressed over the past four years”; “the financial statements submitted to us for auditing were even worse than in previous years”; “the financial health of auditees continued to deteriorate”; “the auditees that materially did not comply with legislation increased”; “non-compliance with supply chain management legislation increased”; “irregular expenditure continued to remain high at R51 billion”. And so on.

That there is a crisis in public financial management of monumental proportions in South Africa cannot be denied. The reasons for this state of affairs are many and varied. Foremost amongst them, it has been argued, are poor political leadership and the attendant lack of political will to impose financial and managerial discipline; elite capture of state institutions; indifference to accountability mechanisms; lack of consequences for transgressions; and lack of technocratic capacity to implement what is certainly a complex and demanding financial management framework.

What role for universities?

What role can South African universities play in mitigating this crisis? Of course, universities cannot address all of the challenges mentioned above, but they can most certainly implement programmes for the development of the technocratic skills necessary to provide the capacity that is so obviously lacking in public sector financial management.

The need for universities to become actively involved in such projects is self-evident. But here’s the thing: with few exceptions, South African universities have shied away from playing a meaningful role. While many universities offer undergraduate commerce degrees (which embrace accounting, finance and related subjects), these are designed purely to address the needs of the private sector.

Scarcely any provision is made in these university programmes for teaching anything about the public sector. To the best of this author’s knowledge, only two South African universities at present provide specialised qualifications in public sector financial management (one of them at diploma level, the other at postgraduate diploma level), but no specialised public sector qualifications are offered by any university at the crucial undergraduate bachelor’s level.

Should universities be doing more? No less an authority than South Africa’s National Treasury, which fulfils a pivotal role in the implementation and management of the PFMA and the MFMA, believes that a lot more can and should be done.

Recognising that huge skills gaps exist in public sector financial management (notwithstanding the ambitious objectives of this legislation), the National Treasury developed a comprehensive Capacity Development Strategy (CDS) for Public Financial Management. The strategy provides a national perspective to address financial management capacity constraints in the public sector, which – very importantly for purposes of this discussion – include a lack of suitable education, training and development programmes.

New curriculum

As part of the CDS, the National Treasury initiated a project aimed at aligning university undergraduate programmes with its Competency Framework for Financial Management. The product of this project was a broad curriculum framework for an undergraduate bachelor’s public sector financial management degree which was specifically designed to address the skills gap, the intention being that universities would be encouraged to adopt the curriculum as the basis for new public sector-focused programmes.

In contrast to the undergraduate commerce degrees currently offered by universities, the specialist new curriculum proposed by the National Treasury is designed to immerse the student in the public sector environment, to teach content that directly addresses the requirements of the public sector, and to produce high-quality graduates who view public service, and particularly public financial management, as a desirable career choice.

Anyone mindful of the country’s public financial management crisis might have thought that South African universities – whose leaders have a lot to say about transformation and curriculum change to address the demands of society – would have leapt at the opportunity to make themselves more relevant and would have eagerly engaged with the National Treasury on this project. Sadly, at least if this author’s experience is anything to go by, getting our universities to become fully engaged is likely to be an uphill battle.

Indifference

Several reasons have been offered for this possible indifference. Among these reasons is a profound lack of understanding of the public sector environment within the accounting and finance components of the academic world, coupled with a misguided belief that programmes designed with the private sector in mind will be adequate to address the needs of the public sector.

Related to this reason (or so it is argued) is the tendency of universities to pay undue obeisance to professional organisations whose primary role is to promote private sector needs, to the virtual exclusion of other needs.

It has also been suggested that in some universities there exists a culture of elitism, with little inclination to promote a culture of public service and therefore to support public-service oriented programmes. And perhaps, for some universities, implementing and sustaining programmes of this nature simply demand too much effort and commitment.

Whatever the reason, it is to be hoped that universities will come to recognise the crucial role that they can play in building a capable South African state, which inevitably requires the development of appropriate financial management skills. Government, in the form of the National Treasury, has taken the initiative; it is now up to our universities to do their bit. Much depends on their doing so.

Andrew Siddle divides his time between the consulting and academic worlds. In the former role, he consults to a range of government, international, research and advisory institutions, mainly on policy and governance issues. In the latter role, he is an adjunct associate professor in the College of Accounting at the University of Cape Town, South Africa, where he teaches in a postgraduate programme in public sector accounting, and is also a research associate at the same university’s Graduate School of Business. He has been admitted as an attorney of the High Court of South Africa and holds postgraduate qualifications in law, business administration, financial management and public management.