Appropriation Bill Public Hearings: Department of Health & National Health Council expenditure

Meeting report

Appropriation Bill Public Hearings: Department of Health unaudited expenditure outcomes
Ms Valerie Rennie, Acting Deputy Director-General: Corporate services, and Acting Chief Financial Officer, Department of Health, said that the Department of Health (the Department or DOH) had set a year-end target for spending of 100% of budget, but had actually achieved 97%. There was under expenditure in all programmes .The total under expenditure amounted to R742.933 million for the 2010/11 financial year. Reasons for the under expenditure included that some commitments in the system were not honoured, owing to banking details of suppliers not verified on Safety Web before year-end. ¨An amount of R7 million for the Information Technology (IT) equipment was not processed as the Bid Adjudication Committee for the procurement of the server only granted approval in the first week of March 2011. An amount of R11.6 million, for procurement of equipment for the Forensic Chemistry Laboratories, was not processed before financial year-end.

She summarised the expenditure for the programmes and the spending for each (see attached presentation for full details). She noted that the underspending on transfers was R509.370 million, due to stopping of transfers for the Hospital Revitalisation Grant.

She also noted that some non government organisations’ funds were not transferred. These included the holding back of funds to LoveLife (R38 million), Zivikele NGO (R600 000) and the Cancer Register of R415 000. Estimated accruals for the 2010/11 financial year amounted to R67 million. This was compared to accruals in the previous year of R57 million, showing a R10 million decrease.  Out of the total under-expenditure of R743 million, only an amount of R285 million had been requested for roll overs. This was detailed as R61 000 for computer equipment for the Forensic Chemistry Laboratories in Pretoria, capital equipment for security to Payment Webcam, of R100 000, and committed funds towards services rendered as Chris Baragwanath Hospital, to be covered under the Hospital Revitalisation Grant for Gauteng, of R72.6 million, and R46 million was still to be rolled over for payment to Eastern Cape. R100 million was due for funding of five national projects to improve infrastructure planning and procurement of health facilities. Ms Rennie stressed that the under expenditure indicated did not reflect lack of capacity to spend the appropriated funds, since the funds had already been committed. The under expenditure for the revitalisation grant would be presented in detail, with remedial actions also listed, in the DOH’s next presentation.

She noted that the total spend on capital over the past financial year was R3.2 billion, which constituted 80% of the total allocated budget. The amount of under expenditure decreased from R813 million in 2009/10 to R802 million in 2010/11. The figures confirmed that the under expenditure pattern had stabilised and improved.

National Health Council 2010/2011 Financial Year expenditure
Dr Massoud Shaker, Head of Infrastructure Unit, National Health Council (NHC), explained the plans for the Infrastructure Unit and detailed the expenditure. He said that the infrastructure service delivery enablers had rationalised all components dealing with infrastructure service delivery and health technology within the national and provincial Departments of Health. Infrastructure planning, support and maintenance were of major concern. There were facilities worth millions of rands that were deteriorating across the provinces. The main objective of the National Department of Health Infrastructure Unit (NDHIU) was to assist and support the planning, acquisition, operation and management of South Africa’s public healthcare infrastructure, through all stages of the infrastructure cycle. The major functional strategies included the development of norms and standards. Capital project status reporting was set up, to obtain financial and contractual data on all public sector projects in South Africa. This would help to identify backlogs and budget shortfalls. A proper project management evaluating system was necessary in order to monitor the 2 400 projects that were already under way. Service delivery had to be fostered through project monitoring and oversight support. Teams would be sent to all the provinces to ensure that deficiencies were addressed. A Project Support office would be established in the national department to assist provinces.

The total spend over the past financial year was R3.2 billion, which constituted 80% of the total allocated budget. The amount of under expenditure decreased from R813 million in 2009/10, to R802 million in 2010/11. The figures confirmed that the under expenditure pattern had stabilised and improved. The provincial breakdown of figures indicated that Gauteng, Western Cape (WC) and Kwazulu Natal (KZN) performed well. However the expenditure should have been accelerated by 50% instead of 20%. The Eastern Cape (EC), Mpumalanga and Northern Cape (NC) decelerated their expenditure by 17.2% and 2% respectively, while they should have accelerated by 77.4% and 57% respectively. The case was more serious in monetary policy terms, since their year on year budget was cut by 33%. The Free State (FS), KZN, Limpopo (LP) and North West (NW) accelerated their expenditure by 36%, 22%, 36% and 27% respectively. They should have accelerated by 110%, 123%, 88% and 29% respectively. Gauteng and WC accelerated by 15% and 63%, which was acceptable.

Dr Shaker noted that from the beginning of the 2011/2012 financial year the Infrastructure Unit of the Department of Health was the custodian of both the Hospital Revitalisation Grant (HRG) and Health Infrastructure Grants (HIG). The HRG was R4.1 billion and the HIG was R1.7 billion. There would be special emphasis on the projects under these grants in future. There were 66 hospitals under the HRG and 173 under the HIG. A minimum of 30% had to be spent per quarter on these grants. 107 nursing colleges would also be added by way of these grants. The establishment of the Special Purpose Vehicle, which was the Equipment Committee, meant that unspent funds could be identified and used for other purposes, rather than being returned to Treasury. For the 2011/12 financial year, EC, FS, KZN, LP, Mpumalanga, LP, NC and NW should accelerate their expenditure by 129%, 73%, 102%, 60%, 28%, 57% and 16% respectively.

Dr Shaker noted that the Department had initiated several support programmes aimed at enhancing the capacity of the Provincial Departments, and addressing past deficiencies in quality and quantity of budget spending. The capacity of the Provincial Departments to deliver on capital projects was dependent on the capacity of the Department of Public Works (DPW) as the implementing agent. The so called 'Golden Egg' projects were large projects with big budgets that could realise the deliverables rapidly. The intention was to send 30% of the budget on these in each quarter. There were specific support and monitoring packages proposed for all the provinces, in order to monitor all stages of expenditure, and specific officials had been allocated with responsibility for the monitoring and follow up of payments in all provinces. He noted that the Department of Health had already spent R250 million in interest payments as a result of late payments to contractors.

Discussion
Mr M Swart (DA) asked what the original amount allocated to Love Life had been, noting that there was R38 million underspending.

Mr J Gelderblom (ANC) said that the underspending by Love Life was unacceptable.

Dr Yogan Pillay, Deputy Director General, Department of Health, replied that Dr Shaker's approach was aimed at identifying the key challenges in each province and then tailor-making the appropriate interventions. It would still remain to be seen what the impact of the interventions would be. However, it was realised that the interventions would have to be far more specific and targeted in future. There were already positive signs as a result of the new changes. For example, between 2008 and 2011, there had already been a 50% reduction in the Mother to Child HIV infection rate, from 8% down to 4%. LoveLife was providing a very important service to the country, as it focused on young people and reducing the infection rate of HIV. Various government departments gave funding to LoveLife, and all had discussed together how best to support LoveLife to ensure that it did not underspend. Ms Rennie had also visited this organisation to improve its spending and ensure that it had the necessary capacity. He noted that one of the biggest impacts on underspending was a lack of access to facilities for ordinary citizens.

Ms Rennie said that the financial audit reports of LoveLife were analysed and there had always been issues surrounding the funding given to it by the Department of Health. The funds received from the DOH were not held separately, but were pooled with other funding, and it was for this reason that the R38 million was withheld, until such time as LoveLife created a separate banking account. The business plan and priorities had also been re-aligned.

Mr Gelderblom asked why the capital expenditure had not been cleared by year-end.

Mr Swart asked if the R254 million in interest payments related only to the Department of Health.

Mr Swart thought that the delay and late payments, as indicated on page 2 of the financial presentation, was unacceptable, as it had apparently arisen through the banking details of suppliers not being verified.

Ms Rennie noted that the reason behind the lack of verification of supplier's details emanated from a lack of office capacity, and this was being addressed. She explained that the reasons for the under-expenditure in Programme 1 related to the compensation of employees and the slow appointment process. The National Intelligence Agency (NIA) had been slow to vet new appointees. New appointees now also had to have their credit history checked with the Credit Bureau, and this was a cumbersome process with much red tape.

Ms R Mashigo (ANC) commented that the Department had a great deal of work to achieve. She noted the comments on page 9 and pointed out that the completion of the hospitals and clinics would depend on available capacity. She asked how the Department would ensure that there would not be any rollovers.

Ms Mashigo asked whether the Infrastructural Development and Improvement Programme was linked to National Treasury.

Dr Shaker said that the Infrastructural and Improvement Programme was indeed linked with Treasury.

Ms Mashigo asked for the relationship between the summary per programme and summary graph, in the presentation on the financial statements.

Ms Rennie confirmed that the summary per table and summary per graph were definitely related. The figures per programme were translated into the figures in the graph, not in terms of economic classification, but in terms of programmes.

Mr L Ramatlakane (COPE) asked whether the shortage of staff, highlighted in slide2, had been addressed.

Mr Ramatlakane asked what had been the total impact of under expenditure.

Dr Shaker responded that the impact of underexpenditure in infrastructure, for example, was that if there was underexpenditure of R800 million, then 1 000 permanent jobs were lost. This figure was derived from the Development Bank of Southern Africa (DBSA) barometer, which provided that for every R1 million spent, 5.8 direct permanent jobs and 5.3 indirect permanent jobs were created.

The Chairperson referred to the presentation on the financial statements and asked if the R7 million that was rolled over for Information Technology (IT) bore any relation to the rollover in the previous financial year.

Ms Rennie noted that the rollover of the previous year, of R14 million for IT, resulted from the move to Servitas. This has now been resolved. The current R7 million rollover was for new IT equipment that could not be procured on time.

The Chairperson asked why there was underspending in Programme 1, as shown in the summary per programme slide.

The Chairperson commented that it seemed that there was a problem with planning in the Department. He asked what steps were taken against individuals who had not done their work properly, for instance, those who had been responsible for the late payments that had resulted in interest accruing to R250 million.

Dr Shaker said that the R254 million was an example of one hospital that was taking years to finish and the problem of slow payment had been going on for years. The Department had been defaulting in terms of proper project management and contract administration for this hospital, hence the interest payments amounting to R254 million.

The Chairperson said that it would be necessary to prioritise support for hospitals and clinics in provinces that were in dire straits, such as the Eastern Cape. He said that underspending was a problem, but withholding funds as a result of underspending had no effect. LoveLife had been underspending for years, and this gave the impression that it did not need the funds allocated to it.

Dr Shaker confirmed that the most needy provinces would receive the most intervention, as demonstrated in the various slides. Part of what had been presented was an interim plan (Project Management Support Unit or PMSU) whilst a long term plan was being formulated. He agreed that it was not possible to keep on saying that lack of service delivery resulted from lack of capacity.

Mr Ramatlakane asked what happened to the officials responsible for the R254 million-interest payment as a result of slow payments to suppliers. 

Dr Shaker said that the project was at a standstill but after the intervention it was now up and running and there were regular payments. He explained that a further cause for the delay was that in the middle of the project there was a change in supplier. The funding for the project was given to the Department of Infrastructural Development (DID) for payment to suppliers. When DID had encountered cash flow problems, and it would then use the money from DOH to pay other suppliers for other projects involving other departments. 

The meeting was adjourned.