Fourth Quarter Expenditure Review: Committee Report deliberations

Meeting report

Committee meeting logistics
Dr P Rabie (DA) tendered an apology for Mr M Swart who would be late, as he was flying in from George.

The Chairperson said that the House Chairperson had issued a directive that meetings start at 09:00.

Ms B Ngcobo (ANC) responded that even though the directive anticipated that meetings should start at 09:00, there was a problem with the traffic. She left home at 07:30 but only arrived at parliament at 09:05. She recommended that the issue be raised in the House Chamber.
 
The Chairperson proposed that a solution would be to commence meetings at 09:30. The reason for the 09:00 start this morning was that Treasury was supposed to address the Committee on Preferential Procurement Regulation. However, he was informed on Monday 31 August that the officials who had to do the briefing were not available, and that the briefing would have to be postponed.

The Chairperson said that the researchers had prepared a summary and analysis on the national Fourth Quarter Expenditure Reports, which were presented to the Committee in terms of the Public Finance Management Act (PFMA), and this meeting would therefore now focus on the Expenditure Report, and give an opportunity to Members to familiarise themselves with the Regulations.

Draft Committee Report
The Chairperson referred members to the Money Bills Amendment Procedure and Related Matters Act and said that in terms of the Act Parliament had to establish a Committee on Appropriation, which must report on actual expenditure published by National Treasury. Legislation also required that after every Hearing held by the Committee, a report must be presented to the House, and this process was in preparation for it. He said that the Committee would have to go through the reports to identify the departments that were either under spending or over spending, and part of the Committee’s oversight required it to then summon departments that were habitually under spending to give an account of why they did not complete their expenditure.

For the fourth quarter the departments identified as having problems were the Departments of Public Works, Agriculture, Transport, Health, Labour, Water Affairs, Forestry, Correctional Services and Home Affairs. The Departments of Water Affairs and Forestry were called for a hearing. Although Parliament also showed over expenditure its officials were not called, because the Financial Management of Parliament Act required that a Committee be established a Committee to specifically look at Parliament’s financial expenditure, and this had not yet been done.

The Chairperson realised that this was the first time Members had had the opportunity to see the draft report. On 15 September National Treasury (NT) would present the delayed report for the third quarter. He pointed out that there was a need to keep to the time frames stipulated by the PFMA. In the past it was a challenge, since departments would issue their monthly and quarterly reports on figures that were spent. For instance, Sector Education and Training Authorities were expected to spend a certain amount, which they would say had been spent, yet could not give performance information. He said that the Committee had to move away from only looking at figures and get information about what the money had achieved. Departments had Strategic Plans, and should therefore spend approximately 25% of their budget per quarter. There had to be value for money spent. The Committee had to do a quarterly check, since the Auditor-General (AG) only did a review at the end of the financial year. In order for departments to get a clean audit, they would have to abide by the points emphasised by the AG and this had to be monitored by the Committee. Moreover, the Standing Committee on Public Accounts (SCOPA) did inspections only once at the end of the quarter, held hearings and then that process was over.

The Chairperson emphasised that although the Committee’s job was to monitor whether departments had spent within the prescribed period, as well as check the quality of their spending, there was a little more to it as well. One issue that needed attention, perhaps with the help of the public service, was that of public servants engaged in tendering, as raised by the AG. He was unclear how the Committee could monitor the issue. It was not strictly speaking part of this Committee’s mandate, but was in the public domain and Members could not turn a blind eye to it. He was open to advice from other Members on this issue.

Ms B Ngcobo (ANC) asked whether the Committee would ask the Public Service Commission (PSC) to give the Members a narrative on what they needed to know.

The Chairperson said that the normal procedure was to invite the PSC to give a report on how public servants conducted themselves, as well as vacancies and any other issues they felt were necessary. The PSC would be invited when dealing with the third quarterly report. An invitation would also be extended to the Human Sciences Research Council (HSRC), since it could especially look at the impact of expenditure, especially on agriculture. He stressed that Members should be concerned about the outcomes and the impact of government programmes.

Draft Report Presentation
Mr Phelelani Dlomo, Researcher, Parliamentary Research Unit, said that the public hearings were concerned with the review of total expenditure, as referred to by the Chairperson. The oversight was done on national departments, and therefore the Committee only looked at the appropriated budget and it did not include the amount for the direct charge. The direct charge was the off-budget amount not allocated to the appropriation amounts of the judicial budget, and the budget for Ministers, the President and Deputy President. The direct charges were paid from the National Revenue Fund. He said the budget consisted of three categories, being current payments, transfers and subsidies and capital payments. The majority of the national budget was dominated by transfers and subsidies and constituted approximately 70% of the budget, and it would be critical for the Committee to pay more attention to where the budget was tailored.

Over and Under Spending
Mr Dlomo explained that capital payment and capital expenditure were the same. He said, in regard to the budget spending by departments, that 99.4 % was an under spending but this was really too small to acknowledge by way of questioning. Of the departments’ actual budget of R372 billion, an overall amount of R358.64 billion was spent. It was necessary to look at figures and comparisons in real terms as well as percentages, to provide members with the evidence. In the previous financial year the departments spent 98.5% of their budgets, and this year their expenditure increased to 98.55%, which was an improvement. The budget for current payments was R101.6 billion but the departments spent more than they were allocated. They spent 0.30% more, a total of R105. 7 million, which was a huge amount in real terms although the percentage seemed quite low.

Transfers dominated the budget. The overall budget was R258.5 billion but only R257.5 billion was transferred to receiving entities, which meant there was an under spending on transfers. Capital expenditure was allocated a budget of R10.2 billion but only R9.6 billion was spent, which resulted in an under spending. He said that capital payments applied in respect of large projects where government should generate job opportunities for the people. If the departments continued to under spend in this category, this would have an effect upon whether unemployment could be halved by 2014 and whether the millennium goals could be achieved.

The criteria used for identifying departments for under spending focused on government’s national priorities for service delivery. Considering the huge budget of the Department of Water Affairs, there was massive under spending. The Department of Health did not under spend hugely, but it had to be noted that this Department was responsible for delivery of priority services. In total, the departments under spent by R1.5 billion. This was a huge amount, particularly if it was considered also in the light of the service backlogs, which prevented people from having access to water and basic services. He stressed that under expenditure meant that money provided for services was not spent.  There was under spending in the 2007/8 financial years and again in 2008/9.

Over-Spending
Mr Dlomo pointed out that Parliament overspent its budget by R127.876 million, which was not in their budget projection. The Committee on Appropriation must pay attention to this dilemma, since Parliament was not called to a Hearing. He proposed that the Committee do something about this anomaly because if neglected, it could become a problem.

Discussion
Mr M Swart (DA) asked whether Mr Dlomo knew what proportion of the Department of Water Affairs budget was for capital expenditure, because the Department recently told the Committee that it was short of R60 billion for infrastructure projects. He asked for the figures for current and capital expenditure in that Department’s budget.

The Chairperson asked whether the report was going to refer to the hearings, and whether the report would look at the causes for under expenditure, and also make mention of those departments with whom the Committee had interacted. He said that the report would be useful to members as a draft and preliminary document, but should outline the additional items as well.

Mr Dlomo responded that the report was compiled after the hearings were conducted and included information gathered from National Treasury. Important issues were highlighted to avoid lengthy reports that may be time consuming or difficult to present and examine. Since it was a draft that still needed input, he had noted the Chairperson’s comments. The Research Unit expected to be guided by the Committee about the format and shape of the report.

Ms R Mashigo (ANC) referred to the introduction of the report, which mentioned that the researchers had contacted the departments. She said that mention should have been made of how many departments were contacted and how they responded, particularly the Department of Labour, whose report was not up to standard, and who had been asked to forward another report.

Mr Swart agreed with the Chairperson that the detail consisted of under and over expenditure, which was only read and not analysed. The Department responsible for Water Affairs should have been called and asked why it was not spending its money, and then it should have responded with the reasons. The Committee could have then informed that Department whether the reasons were accepted or rejected. Ultimately the Committee would decide whether they would allow departments to undertake shifting and movement of funds, and whether it would allow virements. It was important for the Committee to know when a department under spent, and in what area this had occurred, because capital expenditure created jobs and infrastructure. When the Department of Water stated that it was short of R60 billion for infrastructure, it would be necessary to know whether there had been underspending on the capital expenditure side, rather than their current payments, because of the creation of jobs and infrastructure.

Dr Rabie said that under spending was often an excuse used by departments. The same issue came up year after year. In the Department of Sports and Recreation, under spending and vacancies were connected. He said the Committee had a duty to give departments a certain period of time to fill vacancies because of the lack of delivery. He emphasised that part of the reason for the lack of service delivery in departments was their vacancy rate, and competent people could be found if the Departments really looked at the issue properly. He recommended that the Committee should tell departments that temporary vacancies would be allowed for the current year, but that this excuse would not be accepted next year. He stressed that the Committee had a responsibility to address this problem because of tremendous unemployment.

The Chairperson said that it was precisely why Members were having the meeting. The Committee would engage with the Department of Public Works, who was charged with the responsibility of creating jobs, listen to its explanations, and make recommendations to Parliament. The next time the Committee met with the Department the Members would want to know what was done about the recommendations

Mr Sizwe Nyenyiso, Researcher, Parliamentary Research Unit, said that some of the crucial issues raised in the public hearings were not included in the report, but noted that this was still a draft, and again requested guidance from the Chairperson and Members as to what they would like included.

The Chairperson stressed that he wanted all the issues raised in the hearings included in the report, and emphasised that the researchers had to pick up those crucial issues. He asked that challenges that had been identified in the Health Department, and the recommendations made, also to be noted. He suggested that the reports should be phrased in plain language, to enable people to understand the issues, particularly since he needed comments on them.

Ms Mashigo requested that the researchers number their drafts.

Mr Swart emphasised that if the draft reports were received a day before the meeting Members would have been able to read and comment on the document in the meeting and give their recommendations.

Under-Spending issues
Mr Dlomo said that some of the questions would be answered during the course of the presentation. He pointed out that the Department of Transport had under spent on current payments due to the moratorium placed on filling vacant posts. This Department had wanted to avoid over spending, as the current vacancies exceeded the budget allocation for current payments, and therefore it could not fill all the vacancies. He stressed that the 35% under spending in this Department was questionable, particularly since many of the vacancies existed at management level and were important in order to facilitate the development programmes. He said that a critical issue was the oversight programme responsible for overseeing all the Department’s linked entities. This too had many vacancies, and therefore lacked proper capacity to oversee those entities. The Department had explained that they did not have full capacity to oversee the huge number of entities. Mr Dlomo said that this led to the question of who had the responsibility to ensure that everything was in order. Programmes needed people with the right capacity to do the job, in order to succeed.

The Chairperson asked whether the Department of Science and Technology’s expenditure for the current payments budget should not read R88.7 million and not billion. This correction was noted.

Mr Dlomo said the Department of Science and Technology spent most of its funds in the fourth quarter, which created what was known as fiscal dumping. The spending only commenced in the third quarter, to avoid over spending.

The Chairperson said that he recollected that the Department of Labour was sent away and asked to return when a senior official with a clear understanding was able to present to the Committee. This Department should have completed its input and returned to the Committee, and a time must still be scheduled for a hearing.

Mr Dlomo said that the Department of Labour was unable to fill vacant posts quickly. This Department was the training ground for employees, and inspectors moved on with that experience. On the other hand, salaries for inspectors were low in comparison with competitors, which was one of the reason that the inspectors would move on. Since Labour Inspectors were supposed to enforce the laws and regulations of Government, the question was what the state of compliance and inspecting was, in light of the vacancies.

Dr Rabie responded that the situation was not confined to South Africa. It was an accepted principle in developing countries that the public sector was often a training ground for the private sector. The best solution was to pay competitive salaries to stop the flow of competent people to the private sector

The Chairperson agreed with Dr Rabie but emphasised that the Department had made a decision about remuneration, and therefore could not complain to the Committee about inspectors being underpaid.

Mr Dlomo said that the Department of Education had achieved savings, because instead of making copies in respect of every student they identified an alternative which would allow that Department to spend more efficiently and make a greater impact. The Department’s budget did not reflect over spending.

Mr J Gelderblom (ANC) said that the Committee would have to come up with a proposal.

The Chairperson responded that the proposal and recommendations had to be based on what the departments said.

Mr Gelderblom said that next year the departments would again provide figures. He asked what would happen if there were no responses to the proposals, and what action would be taken concerning the departments.

Ms Ngcobo said the issues of vacancies were extremely important and this problem was evident across all the departments. There were many graduates who remained unemployed, and she asked who was responsible for re training and re channeling so that the demands of both the public sector and those needing employment could be met.

The Chairperson responded that he was glad the Members were moving in the direction of recommendations. He said he could not understand why departments persisted in saying that there were no skills available, as he agreed that there were many graduates who remained unemployed. If the graduates were not skilled enough to take on certain functions, then someone had to take the responsibility because there was a resource that was trainable. Parliament should not be seen as contributing to unemployment and that point should be noted in the recommendations.

Ms Mashigo reminded members that the Committee had on several occasions referred to this issue in its recommendations. She felt that the report should specify that the Committee expected the trainees to be retrained, as there was a database of unemployed graduates. She wanted to know what progress had been made on these recommendations, to show that the Committee followed up and would still address the issues.

Mr J Maake (ANC) suggested that the researchers compile one grid of transfers and subsidies, which were currently separated. The grid should include all the departments, so that it was easier to track a department and see whether spending was on target, and in which area the discrepancies lay.

The Chairperson responded that the point raised by Mr Maake was important. He said that he might be expecting the new Money Bills Amendment Procedure and Related Matters Act (Money Bills Act) to achieve too much, but it did confirm the reporting of recommendations. In the past recommendations were made, and departments would choose to either respond or not to respond to the recommendations. However, the Act compelled departments to respond to the recommendations, and it was up to the Committee how it would use the Act.

Ms Ngcobo referred to the Joint Initiative for Priority Skills Acquisition (JIPSA) programme budget and wanted to know what happened to it, as the country was still faced with the dilemma that applied three years ago.

The Chairperson responded that it was an important question, and a recommendation should go to the other Portfolio Committees, because the Deputy Presidency was responsible for JIPSA.

Mr Nyenyiso stressed that Members should note that the negative sign in the report indicated those departments that overspent and the positive sign was for under spending. The Department of Water Affairs was the most under spending department in the category.

Mr Swart asked what ‘households’ referred to.

The Chairperson responded that the Committee should be briefed on this

Mr Maake asked whether Parliament and the Presidency could be called in, in view of the enormous percentage of overspending.

The Chairperson responded that there was a mechanism to call Parliament in.

Mr Dlomo responded that Households was a programme in the Presidency that took care of presidential accommodation, and budgets for all the items in the presidential house. He explained that last year, with the Cabinet and Presidency reshuffle there were changes, as people moved out with their belongings and monies also had to be paid out. In addition new people had moved in and some things were brought over. It was not known that there would be such movement, and that budget projection was not made. This also included the legal costs of the former Deputy President, and money was paid out to her due to the requirements of the Presidency.

Ms Ngcobo asked if the issue of Households was in the Presidential report.

Mr Dlomo responded that the information was received from National Treasury, which also gave an explanation of the Household programme.

Mr Nyenyiso said the Department of Land Affairs had allocated some of their funds after the budget adjustment. This Department was not called to attend the public hearings, and it was not possible to get an indication of what happened to public corporations and private enterprises. He pointed out an apologised for the mistake in respect of transfers and subsidies.

The Chairperson thanked Mr Nyenyiso for bringing his attention to the matter. He said that Government was experiencing problems in the transfer of 30% of agricultural land by 2014, and to date only had achieved transfer of 3% to 5%. The Committee had to establish whether the problem lay with the Department or with National Treasury.

The Chairperson said that the Money Bills Act gave Parliament certain powers and it was up to the Committee to use those powers. Although the Presidency had established a monitoring and evaluation unit, it was clear that there were problems and challenges around planning.

The Chairperson noted that when dealing with the Medium Term Expenditure Frameworks (MTEF) as well as the next and could therefore plan. Moreover, in terms of the Division of Revenue Act, departments had to submit plans, especially capital expenditure plans, for the 2008/9 financial years. Therefore when departments came to the Committee they were not always giving valid reasons and some explanations in fact amounted to excuses.

Ms Ngcobo said that it appeared that the top management were unable to do their jobs and were using consultants, though management was put in those jobs to deliver. She asked whether the Department of Public Service and Administration had to do an audit.

The Chairperson responded that there was also a tendency to call under spending a saving. This question required a response, especially during this period when budgets were tight. Departments had to indicate where they intended to save on consultants. He agreed that consultants were sometimes required, but where there were sufficient skilled persons, then the use by departments of consultants should be avoided. He said the Committee should discuss this issue with the Public Service Commission.

Mr Nyenyiso said that in the last financial there were problems with the Public Service Sector Education and Training Authority (SETA), and recommendations were made in the Committee Report.  There was no Board appointed and as a result financial management and other operational issues were not functioning as intended.

The Chairperson remarked that the explanation given by the Department of Water Affairs on under spending of R518 million indicated that this department was not necessarily responsible. It was therefore important to discuss the structure of the report to make it easier to follow.

Mr Swart agreed and said that the Department indicated the R518 million was for spending on the social component, but now wanted the funds to be utilised for other infrastructural programmes. However, it was Parliament that decided how the funds requested should be used. It needed to know how the social component was made up, and whether it was desirable to have the money spent on the social component rather than the infrastructural part.

Mr Gelderblom pointed out that it was also against the Treasury Regulations and the PFMA.

The Chairperson responded that in terms of the PFMA an amount appropriated for capital expenditure could not be defrayed elsewhere, or moved to current payments. The Department owed the Committee an explanation. Although there was a margin of 5% divergence in spending allowed, this Department had under spent by 12%.

Capital Expenditure items
Mr Nyenyiso said that reasons given by the Department of Public Works for increased Capital Expenditure were the timing differences in the processing of payments, processing payments to the proper budgets, finalising capital projects, inadequate project management capacity such as at Freedom Park and Tswane, and aligning the end of the financial year.

Ms Mashigo said that the Department was held back by a forensic audit and could not get the results. She asked what the Committee would do.

The Chairperson responded that the Department should be given a chance until the next quarter, and Parliament must find a way for this Department to make some commitment to releasing the report because services were required. The Department’s hands were also tied because of allegations of misconduct in tender awards. The Committee could not finalise its report now, but had to look at how it could assist the Department and make recommendations.

Mr Swart pointed out that a correction had to be made in respect of the budget of the Department of Foreign Affairs. It should read R1.3 billion for capital payments, not current payments.

Mr Nyenyiso said the Department of Labour had problems with Indlela and the discovery of dolomite, which was explained in the second quarter report.

Mr Swart pointed out that the Department should have first investigated the presence of dolomite before commencing the tendering process, and given proper consideration where to build. He said poor planning resulted in these problems.

Mr Gelderblom said that it was irregular to give the Department an additional R1 million. This was also indicative of poor management and planning and that the Department probably knew it would not spend all the money for capital expenditure.

Mr Nyenyiso said the R1 million was not an additional amount, and that funds were shifted from one allocation to another. He agreed that at that point in time the Department knew it would not spend all the money.

The Chairperson responded that the Department would have to come to the Committee and give a full report-back. He said that in the past National Treasury made decisions, but the Committee’s role was now different and portfolio committees would play more of a role in accepting or rejecting recommendations. This Committee needed to seek the support of the relevant portfolio committees, and to exercise their oversight role.

Mr Gelderblom agreed that portfolio committees had to work together. He pointed out that Ministers and MECs knew how much their quarterly funding was, and were supposed to pick up discrepancies. Moreover, heads of departments had to inform Ministers about these situations, otherwise this displayed lack of responsibility.

Summary of findings
The Chairperson summarised the conclusions that Members had reached during the deliberations. The first finding agreed upon was the vacancy rate. The note about the increases in capital expenditure was also a finding and not a recommendation. He said that averages hid many things, as was identified with the Department of Transport. He emphasised that the issue of vacancies had not been stressed enough in the findings, yet it was identified as one of the shortcomings. Proper weight must be given to it in the report.

Mr Dlomo said that departments were under spending on current payments and over spending on goods and services due to delays in processes, which had resulted in payments being made in the fourth quarter just to close off the financial year.

Mr Gelderblom said that there was also a lot of red tape in tender processes and recommended that the tendering process be streamlined, because it had an effect on public works and particularly the building and refurbishment of hospitals

Mr Maake said that the same problems were recurring in departments every year. Payments would be delayed if an official went on leave.  The result was that contractors experienced problems such as striking workers, as well as problems with their banks. He asked whether the PFMA would be a guideline.

The Chairperson agreed that there was a repeated trend in capital expenditure that tenders were delayed. The Committee would highlight the issue in the report, but the departments had to come up with a solution. He queried whether the departments were planning on time, and whether people who were supposed to get the tender actually did, because sometimes those with the highest points were not necessarily automatically awarded the tender.

Mr Nyenyiso emphasised that these issues were not being raised for the first time and were included in the previous years’ reports. Many recommendations were given around vacancies as well as other issues, and he suggested that the Committee look at those recommendations and call the respective departments to account for their repeated failings. With reference to roll overs, he stressed that a new culture was needed in departments so that they would spend their current projections, to improve government spending overall.

The Chairperson commented that it would take time for Government to understand the observations made. He said that when monies were committed, rollovers could not be denied by law. There was a tendency to abuse these provisions, as departments had a habit of virement for the purpose of getting funds, and measures had to be put in place to prevent the recurrence of under spending. The Committee needed to look at the previous expenditure patterns of departments – and, for example, compare one against another, to support the findings of the Committee. The PFMA did allow for virement, but when funds were being hidden in the budget this must be found, with supporting evidence

Ms Ngcobo asked whether the Parliamentary Research Unit could begin to isolate the trends in the various departments mentioned.

Mr Swart stressed that the rollover of funds, virements and unspent money were serious concerns, and departments had to commit to spending the funds by the financial year-end.

Mr Dlomo said that some rollovers were made mainly because the departments had not completed certain projects in the specific financial year, and funds would remain in the budget as unspent. In the following year departments had to motivate and request a rollover from National Treasury

Mr Nyenyiso said that rollovers were identified as a problem by the Executive. He referred to the President’s statement emphasising that there should be no rollovers of funds.

The Chairperson said that the Committee would refer to existing legislation to see whether any regulations were being contravened.

Mr Swart, referring to the section of the draft report on overspending by certain departments, requested that the wording include “particularly in the Social Services Cluster” since that was where a lot of under spending took place. It was also important to note this because it was an important area of spending. He also requested that the Committee revise the sentence regarding the World Cup and that it should start with ‘Of particular concern was that some of these projects be linked to the World Cup’.

Mr Maake asked what happened when monies were withheld resulting in lack of services, but where the withholding was justified because the proper documentation or financial statements were not presented. When funds were not forward, this affected the delivery of – for instance – Anti Retroviral (ARV) programmes, yet lack of service could result in deaths.

The Chairperson responded that the Division of Revenue Act required reporting when transferring money to provinces. If the transferring authority was not satisfied with the reports, because they indicated a problem, funds may be withheld. However, there were conditions under which funds may be withheld, and the time of withholding must not exceed 120 days. He also made reference to the Constitutional requirements, noting that although funds may be temporary withheld as a corrective measure, they could not be revoked and would still be received eventually.

Mr Swart referred to Mr Gelderblom’s suggestion that Ministers should follow up and talk to the MECs to find out what was done with the funding, and ask about progress in the projects.

The meeting was adjourned.