Appropriations Spending Report: briefing by National Treasury

Standing Committee on Appropriations

14 September 2009
Chairperson: Mr E Sogoni (ANC)
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Meeting Summary

National Treasury briefed the Committee on the format of the Appropriations Bill, which was seen as an important tool by which Parliament could allocate funds for performance of specific functions by the Executive in an efficient, economical, effective and equitable way. It contained a mix of selected budget and accounting terms. The programme budget structure had been reviewed to improve functionality, in order to enhance connection to government-wide strategic frameworks, support political decision-making and prioritisation, and promote accountability and management. National Treasury had drafted a programme budgeting guideline, which had been tested on three departments. The new appropriations spending report was aimed at providing some pointers for assessing national departmental performance. Further investigation was needed on operational efficiency. Provincial spending was also monitored although Provincial Treasury and legislatures would develop and pass their own budgets. Not all public entities fell under the Public Finance Management Act, so that not all were using the same system of accounting. A summary of expenditure, in the form of figures, was presented to the committee.

Members asked for detailed reports on rollovers, and addressed the question of spending of capital budgets, as also National Treasury’s thinking on the Parliamentary Budget Office. Members also questioned why the Public Finance Management Act did not cover all public entities, and why they were permitted to deviate from standard accounting systems, whether departments were abiding by the Act, and whether National Treasury was able to monitor activities and outcomes.

Meeting report

Appropriations Spending Report: National Treasury briefing
Mr Robert Clifton. Project Coordinator: Technical Assistance Unit, National Treasury, briefed the Committee on the format of the Appropriations Bill. Its format was seen as an important tool by which Parliament could allocate funds for performance of specific functions by the Executive in an efficient, economical, effective and equitable way. It contained a mix of selected budget and accounting terms.

He said that National Treasury, as part of its attempts to improve the consistency of presentations, had taken note of what would be earmarked, and this would include standardisation of programme definitions, what would be designated as specific and exclusive, which transfers were to be identified and what aggregation methods were to be used.

Another aspect National Treasury had taken into consideration was that the Appropriation Committee has to consider changes in programme structure ahead of budget finalisation. This meant it would have to make recommendations and adopt the structure of the Bill prior to tabling by the Minister of Finance on Budget Day.

He also said the programme budget structure had been reviewed. The purpose of the exercise was to improve functionality of programme budgeting, in order to enhance connection to government-wide strategic frameworks, support political decision-making and prioritisation, and promote accountability and management. This would result in confirmed or revised budget programme structures for each vote, and approval processes would include the considerations of the Appropriations Committee. National Treasury had drafted a programme budgeting guideline. The purpose of this guideline, amongst other points, was to emphasise measurable objectives and elevate performance indicators. This guide had been field tested with three departments of Health, Defence, and Labour.

In regard to the new appropriations spending report, he said this aimed at providing some pointers for assessing national departmental performance. Further investigation was needed on operational efficiency because value-of-money assessments formed as much a part in evaluation as routine monitoring, and that quality performance indicators were useful for monitoring since the trends shown by these indicators could give useful pointers. Before using an indicator, it was necessary to ask if it was reliable, verified and accurate, cost-effective, relevant to service delivery, and causing the intended consequences.

In addition, he noted that in certain sectors, spending and service delivery that happened in provinces was being undertaken by public entities who received fiscal transfers and grants from national departments. Therefore provincial spending was monitored closely, although Provincial Treasury and legislatures would develop and pass their own budgets.

He noted that therefore the Public Finance Management Act (PFMA) did not cover public entities in the same way as national and provincial departments. Over 300 entities that were autonomous of the Public Service Act were not using the Basic Accounting System but instead used accrual accounting, and budgeted differently.

He noted that the national government spent 24% of the budget for the first quarter. A summary showing the figures was presented.

Discussion
Mr M Swart (DA) requested National Treasury to submit a report on projects of a major nature, as it appeared that government departments were not spending their capital budgets. The Committee required detailed reports on rollovers.

Mr Clifton responded that high-level numbers indicated that the national departments were behind the trend in terms of spending on payment for capital assets. National departments were not large capital-intensive entities, like those at the provincial and local level. For example, 2% of the national budget was allocated per capital asset. In many cases these allocations were for upgrades, renovations, and building of new accommodation such as the Pan African Parliament, which was paid for by transfers. By contract, direct service delivery types of projects would mostly take place at provinces.

In terms of project reporting, he noted that National Treasury had recently rolled out a new development which effectively revamped the standard chartered accounts. These had in some cases made significant changes. In the past, there had been an issue since some department spent a lot of time reforming processes, rather than making them work. In the first year National Treasury would require reporting on both non-capital and capital-intensive projects. This meant that IT systems would be captured in that project segment, as well as the construction of mortar and brick type projects. He noted that some projects were identified in the appropriations, such as building of correctional service facilities for the Department of Correctional Services. The Treasury was tracking that more closely.

Mr Clifton asked that Mr Swart should state specifically what he wanted to see in the detailed reports, and this would be forwarded to him.

Mr Swart asked if National Treasury thought the Parliamentary Budget Office was appropriate.

Mr Clifton responded that National Treasury would like to investigate this further. He noted that for it to succeed, it would need a dedicated capacity, as there would be increased responsibility on Parliament for capacity, IT, and access to financial systems of government.

Dr P Rabie (DA) wanted some clarity on why the PFMA did not cover public entities in the same way as the national and provincial governments did, and why there was no uniformity regarding accrual accounting budget programmes used by the 300 public entities.

Mr Clifton explained that South Africa was not alone in this trend, which was referred to by analysts as the “agencification” of the Government. He explained that many years ago there were had large departments in the capitals that did everything. But now many countries such as America and United Kingdom had taken the business or private sector approach of creating sub-divisions within departments, and creating legislation that allowed for the creation of public entities or agencies to do the work. It was difficult to generalise about their transparency, usefulness, effectiveness, and productivity. Some of these entities were doing good work, but others left much to be desired. Public entities that were created fell under their own legislation passed by Parliament, and the PFMA may cover them in a certain way. They were set up as independent entities, to a great extent, and they fell outside the Public Service Act.

Ms B Ngcobo (ANC) asked the Treasury if the departments were following the principles, objectives and mandates of PFMA, as she thought that there was sometimes inconsistency.

Ms Zarina Adhikari, Director, National Treasury, explained that Treasury provided guidelines in terms of the PFMA. These guidelines were issued annually. National Treasury would rely on Parliament to ensure that departments were abiding by the PFMA rules. Parliament’s duty was to hold departments accountable, but if Parliament did not then convey reports to National Treasury, it would be difficult for Treasury to follow up.

Mr G Snell (ANC) wanted to know if the IT system of the Treasury was able to monitor these activities and outcomes.

Mr Clifton said the Ministry of Evaluation and Monitoring was building a framework, on an ongoing basis, to monitor key outcomes in government. The focus would be on what was important and manageable. Twenty to twenty five outcome sectors would be established.

Ms R Mashigo (ANC) stated that there were problems with transfers. There were cases where it was realised that National Treasury disbursed money for infrastructure, and municipalities were expected to use their money for service delivery, but sometimes the money would not be properly used.

Ms Adhikari explained that in respect of issues at provincial and local level, such as infrastructure grants to provinces, the departments must provide quarterly reports to the National Council of Provinces. National Treasury would monitor each national department and it would be invited to comment when the provincial department came to account.

Ms F Tlake (ANC) commented that the discussion and the presentation by the National Treasury hinged upon Chapter 3 of the Constitution, which dealt with the necessity for corporate governance. But there had to be coordination and integration, depending on the mandate of each department. He stressed that this legislation was aimed at enforcing good corporate governance.

The meeting was adjourned.

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