Radical Idea: Collaborating to Strengthen Public Sector Financial Functions

For the 2022/2023 financial year, only 34 out of 257 municipalities in South Africa received clean audits, while fruitless and wasteful expenditure rose from R4.89 billion to R7.41 billion. This highlights a growing concern over the state of financial governance in many municipalities and public institutions. Despite layers of regulatory controls, significant gaps in financial management persist within the public sector.

Frequently, we hear of public sector entities involved in spending billions of rands, but it’s often challenging for the average South African to understand how these figures impact their daily lives. Consider the South African Post Office, which has been in the spotlight throughout 2024 due to its liquidation and business rescue processes. It was revealed that over R1 billion in pension fund contributions had not been paid over the past three years, directly affecting the financial security of countless employees.

The Post Office is not an isolated case. The introduction of the “two-pot” pension system recently exposed at least 20 municipalities that have also failed to pay pension fund contributions on behalf of their employees. These instances underline a broader issue of financial mismanagement that risks eroding public trust in government institutions.

Addressing Financial Control Issues Through Strategic Partnerships

Dr. Darion Barclay, Head of the Gauteng Department of Cooperative Governance and Traditional Affairs, recently emphasised that “service delivery improvements will only be possible when local governments prioritise transparency, effective governance, and the needs of the people they serve. Municipalities need capable, accountable, and citizen-centric leadership committed to fulfilling their mandates and improving the lives of South Africans”.

While these improvements are necessary, they will take time to materialise. An alternative solution to bolster financial management is to collaborate with trusted private-sector partners. Strategic outsourcing of specific financial functions to entities with proven expertise in both corporate and public finance can help public institutions enhance their financial oversight without compromising their operational control. The goal is to leverage the efficiencies of the private sector while upholding accountability in public financial management.

Why Outsourcing Must Be Done Thoughtfully

Before fully embracing this approach, we must acknowledge its potential pitfalls. Marianna Mazzucato, in her insightful book The Big Con, warns that excessive dependence on private consulting firms can “infantilise” governments, stripping them of their technical capabilities and leading to a loss of independence. When consulting firms hold the reins, decision-making often shifts away from the institution’s leadership, ultimately stifling innovation and internal growth.

What we advocate for, instead, is a hybrid approach that combines the strengths of both sectors. The African Development Bank supports this view, stating that “Public-Private Partnerships (PPPs) can offer complementary sources of finance … while potentially also delivering higher quality and efficiency in public assets and services”. This model encourages skill transfer and capacity building within the public sector, ensuring that expertise is developed internally even as external partners provide valuable support.

Real-World Examples of Public-Private Collaboration

One example of effective collaboration is the partnership between South African banks and the Department of Home Affairs. The integration of the banks’ technical capabilities and branch networks allowed Home Affairs to address backlogs and improve service delivery significantly. This success story shows how public-private partnerships can solve complex challenges without diminishing the public sector’s role.

A more targeted example is the South African Revenue Service (SARS), which has worked with private audit firms to elevate tax compliance and governance standards. This collaboration brought in external expertise to tighten fiscal controls, address non-compliance, and boost tax revenue collection, demonstrating how partnerships can enhance both efficiency and accountability within critical public sector functions.

Financial Expertise and Sustainability: A Business Imperative

Beyond immediate efficiency gains, enhancing financial management through such collaborations can open doors for sustainability-linked financing. With the growing emphasis on Environmental, Social, and Governance (ESG) principles, robust financial governance plays a crucial role in attracting sustainable investment. Improving financial transparency and accountability in the public sector will position South Africa as a desirable destination for foreign direct investment, driving long-term economic growth.

A strategic focus on ESG metrics is particularly relevant in today’s global market, where investors are increasingly prioritising responsible and sustainable business practices. By aligning public sector financial controls with ESG principles, South Africa can tap into a broader pool of international capital aimed at funding initiatives that drive positive environmental and social outcomes.

A Balanced Approach to Public Sector Collaboration

These examples clearly demonstrate that the public and private sectors can work together to solve financial challenges more effectively. By embracing a balanced approach—where the public sector selectively outsources to the right firms and retains its core competencies—we can create a system that promotes financial accountability without compromising the autonomy of public institutions.

Instead of framing it as “privatisation,” we should consider these partnerships as opportunities to collaborate and innovate. The aim is to create a public sector that is both agile and resilient, one that harnesses the expertise of private entities like those in the CFO Centre to strengthen its financial operations and service delivery.

Ultimately, it’s about finding the right equilibrium: fostering partnerships that enhance accountability, sustain internal skills, and ensure long-term economic and social impact. By adopting this collaborative strategy, South Africa can progress toward a future of more effective governance, improved financial oversight, and a greater level of trust between public institutions and the communities they serve.