The use of consultants in public finance management and reporting has become a significant cost to the fiscus, with stakeholders such as the Auditor-General raising concerns about its sustainability.
Management consulting is the practice of providing consulting services to organisations to improve their performance or assist in achieving organisational objectives. Organisations utilise the services of consultants for a number of reasons, including gaining external (objective) advice and accessing specialised expertise. In South Africa, public finance management and reporting (amongst others) is one area that has over the years required the expertise of professionals, at a notable cost to the fiscus.
Consulting is a large, worldwide industry that encapsulates different professionals, usually under a professional services firm, and includes a broad range of activities in different areas of expertise. In South Africa, consultants provide advice, capacity, and support to various organs of state. As industry leaders, SAICA members support government and its entities with professional consulting services related to public finance management and reporting, as well as other areas of related expertise. In this process, members create value by helping solve various issues, improving performance, and supporting transparency, governance, and accountability.
The public sector skills gaps
The Auditor-General has over the years consistently identified a lack of key competencies as one of the root causes for poor reporting and audit outcomes in both the Public Finance Management Act and Municipal Finance Management Act audits. Consistently (and unfortunately), however, government entities have failed to secure or retain the right skills and talent to support their finance management and reporting on a permanent basis, instead often needing to rely on external consultants to fulfil their regulatory reporting objectives.
According to a National Treasury circular (No 82 issued 2016) and Instruction (No 03 of 2017/18), accounting officers/authorities and municipal managers should only appoint consultants if a gap analysis has confirmed that the requisite skills or resources are not available to perform the work. There are also requirements to closely monitor contracts and the importance of transferring skills, as part of the cost containment initiatives of government. Accordingly, the responsibility for the effective use of financial reporting consultants lies with these leaders and the chief financial officer.
In the 2020−2021 financial year, only 7% of municipalities used reporting consultants to bridge a vacancy gap and 62% appointed consultants to provide skills that the finance unit did not have according to the AG’s report. The remaining 31% used consultants because of both a lack of skills and a vacancy gap. The inability of these municipalities to master credible financial reporting means that they appoint consultants yearly.
Professionals use their skills, competencies, and knowledge to provide objective advice and expertise and help fill specialist financial management skills gaps that are lacking. Through consulting, professionals provide specialist accountancy and assurance-related services, including the preparation of reporting information, providing solutions to problems, conducting diagnostics, and implementing suggested solutions. In addition to this, consultants ideally build consensus and commitment, facilitate client learning, and improve organisational effectiveness.
Consulting in public sector reporting
The inadequate management of consultants (not limited to financial reporting services) has been raised as a concern for a number of years by the Auditor- General, and yet there appears to have been no improvement judging from the latest AGSA general reports. Weaknesses in the planning and appointment processes, performance management and monitoring and transferring of skills remain an issue today, as they were according to the 2014−2015 report. The over-reliance on consultants was also noted a while back as a warning signal of a lack of capacity and skills in local government to produce credible financial statements.
The AGSA reported the following in its 2020−2021 local government general report regarding the previous five-year political term:
Financial reporting consultants’ cost for local government over the same five years R5,31 billion
Municipalities that used consultants each year 70%
The annual cost of consultants in local government has increased significantly over the past years, without clear accompanying sustainable value for government spend (ie, quality reporting). For various reasons, the trend has created an unsustainable dependency on consultants. Through support programmes, the Treasuries and the Department of Cooperative Governance and Traditional Affairs (CoGTA) also spend money on consultants on behalf of local government. This support by national or provincial departments is an effort to provide short-term solutions, ensuring continued service delivery and some level of accountability for public finances. While some effort towards sustainable solutions continues (for example the training of chartered accountants by many of the Treasuries and metros), little has been done to remedy or overhaul the current trajectory.
Something has got to give
In the 2020−2021 Local Government General Report, the Auditor-General reports that during the 2020−2021 financial year, consultants were rarely used for ‘complex accounting matters’, requiring specialist expertise that could be brought by management consultants, but rather for basic financial recording and reporting. In some cases, there were no vacancies at the municipality, but consultants were hired to do the basic work of finance staff. This shows the severity of the state of public finance in South Africa, and results in government incurring both salaries and consulting fees (double spending), for one task. Given the country’s dwindling fiscus, the current state of local government finances, and the fact that despite all of this support and resources poor reporting persists (59% of the municipalities that used consultants had material misstatements in the areas in which the consultants did work), something has got to give.
As an example, the Auditor-General reports that at Inkosi Langalibalele (KwaZulu-Natal), the fully staffed finance unit cost R13,95 million in salaries in the 2020−2021 financial year, while the municipality paid R28,35 million to financial consultants.
The root causes of persistent issues
The following are persistent reasons that the Auditor-General has over the years reported as root causes that lead to the ineffective use of consultants. Little seems to have been done to address these (the reported percentages relate to the 2020−2021 financial year):
- Inadequate / lack of records and documentation (45%)
- Poor project management (21%)
- Work of consultants not adequately reviewed (17%)
- Consultants appointed too late (11%)
- Consultants did not deliver (6%)
- Ethical considerations for the profession
The profession’s recognition of its public interest responsibility is important when dealing with matters affecting government and the country. A distinguishing mark of the accountancy profession is its acceptance of the responsibility to act in the public interest. Considerations need to be made around the ethical dilemmas, threats, and safeguards in relation to the work of professionals in the public sector, particularly those consulting in public finance management and reporting. This will help ensure that professional standards are safeguarded and relevance and reputation are advanced and maintained, and ensure alignment to the fundamental principles of the Code of Professional Conduct.
The use of consultants in public finance management and reporting has become a significant cost to the fiscus, with stakeholders (including the Auditor-General) raising concerns regarding the sustainability of this. This is exacerbated by the lack of concrete benefit to the state through improved processes, skills, reporting or audit outcomes, and the now evident over-reliance on consultants. Of course, this is not necessarily the ‘fault’ of consultants, and these serious concerns will need to be addressed by all stakeholders involved.
Solutions to this predicament need to be both strategic and tactical and will include long-term solutions such as hiring and retaining qualified professionals, improved performance management, learning and development. It will require a shift in mindset towards building sustainable capacity and expertise within the public sector. This will require the setting of the tone from the top (political will and leadership clarity) amongst other fundamental shifts. A significant re-engineering of the consulting landscape may also be needed in the short to medium term.
Msizi Gwala, Project Director at SAICA