5. Chapter 5: Findings and Discussion
5.3. Assessment of SARS Operations Financial Management
70 The findings of the study are discussed below:
71 as it is intended to support them in running their business units. The remainder of finance staff would focus on analysis, reporting and other value add finance activities. Furthermore most of the administrative employees were having less work each year as most of the processes were being automated.
There were many finance teams which made it difficult to consistently apply policies.
SARS finance function was decentralised to the extent that each division had its own finance team and in certain areas like Operations division, each business unit within Operations had its own finance team. Hence one of the respondents complained that Finance was split too far down the line. This made the organisation to have many different finance teams who reported to the chief officer of each division and there was no formal coordination at organisational level that ensured standardisations in processes and application of policies. This created problems as certain finance teams allowed line managers to do things outside policies depending on the finance team’s interpretation of the policy.
Another concern raised was that line managers did not take the finance department seriously and the financial management function was not prioritised in their environments. Hence it was indicated in chapter 2 that partnership between finance and line managers was useful in daily management of operations which included asset management, procurement and expenditure management (Baxter and Chua 2003; Busco, Riccaboni and Scapens, 2006; IFAC 2001).
One of the respondents indicated that there was poor management of expenditure in a sense that most of the expenditure was incurred towards the end of the financial year and again people spend in order not to lose their budget without necessarily applying their mind fully on what they were procuring. Having reviewed management reports of a few business units it can be seen through analysing the trend that there was a spike of expenditure in the last three months of the financial year. This trend showed that most of business units were concerned about losing their budget should it remain unused. This means any item that could not be procured in a particular year would need to be purchased using the new budget. This was problematic for some business units given the fact that a business as usual budget from a previous financial year could not be carried into the next year. The only budget that could be carried over to the next year was for unfinished projects provided it had been
72 approved as a rollover budget by National Treasury. This comment validated the statement made in chapter 2 that Operations division needed to emphasise the importance of expenditure management and cost savings in order to improve financial management practice.
The information on figure 2.5, 2.6 and 2.7 show real life information of spending patterns of three business units within Operations; this confirms the spike of expenditure in the last three months of the financial year.
Respondent number ten felt that most of the financial planning was not informed by any strategy. The researcher got a sense that most of the time they “thumb suck”
numbers in that for the past two or three years they had been taking actuals, and adjusting with inflation, when it might be that there could be a change in a business model and that whatever was in place in the previous year might not be applicable in the new year. This was in line with a statement made in chapter two that the budget process was not linked to a business plan instead it was linked to previous spending (incremental budget method). It is common in any business that a strategy is formulated and relevant financial resources required to execute the strategy are determined. The strategy will then be broken down to an annual business plan with relevant targets in order to measure milestones towards achievement of the strategy over of the period of time. The business plans which are part of the strategy should inform the resource required in the budget.
However at SARS Operations, the budget was determined first and business units were informed to determine what could be achieved with the budget allocated. What was even worse was that the budget allocation was made using what a particular business unit spent in the previous financial year plus an inflationary adjustment percentage. This arrangement makes it difficult for business units to deliver on their business plans or work on new projects. This is against guidelines issued by IFAC requiring government entities to have procedures and policies in place that can assist them to have effective financial management and efficient budgeting (IFAC, 2001).
5.3.2 The outcome of the researcher’s probing showed that eight out of ten the respondents felt that SARS financial management was better than that of other
73 government entities. Respondents made this judgement based on the information available in the public domain through the media where it was reported from time to time that most government entities were affected by financial mismanagement, maladministration, fraud and corruption. The most evidence is in the Auditor General’s 2011/12 audit report where he indicates that almost twenty six percent of departments that were given qualified opinions by the Auditor General hold fifty three percent of voted funds. This means that more than half of total budgets were controlled by departments that did not have proper financial management in place (Auditor General, 2012). Some of the reasons cited by respondents were that SARS was advanced because it had proper systems like SAP although it was not utilising its full functionality while other government entities were using different system which were not integrated. From time to time there were stories in the media of mismanagement of funds, fraud, funds being transferred to other areas as opposed to the objectives and other issues.
Two respondents felt that even though SARS had received unqualified audit reports that did not mean it had good financial management. There were provincial departments who had received qualified audit reports which made them employ extra efforts in improving their financial management to the extent that the application of their financial policies was even better than SARS. The splitting of finance into too many teams in one building in line with operations structures was cited as one of the problems affecting the financial management function.