Third Quarter Expenditure of National Departments: briefing by parliamentary researcher

Standing Committee on Appropriations

13 April 2010
Chairperson: Mr E Sogoni (ANC)
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Meeting Summary

The Parliamentary Research Unit briefed the Standing Committee on Appropriations on the third quarter expenditure analysis for the year 2009/10. The analysis provided a detailed overview of Government spending for the period 01 April to 31 December 2009 and highlighted spending patterns of the national departments. The analysis was also intended to draw the attention of Parliament and Executive to the findings and recommendations in order to improve public spending. National departments were allocated an adjusted budget of R408.9 billion for the 2009/10 financial year. Overall expenditure at the end of the quarter was standing at R304.02 billion of the adjusted budget. After the Government restructuring, the overall budget comprised 43 budget votes. Close scrutiny of Government spending suggested that stricter systems should be put in place to strengthen budget implementation.


Research findings included lack of action on the Committee’s recommendations; challenges in managing conditional grants; slow spending of conditional grants; late submission of business plans; high vacancy rates; skills shortage; delays in tender processes; and delays in both submitting and signing necessary documents. There was a culture on depending on senior managers working in an acting capacity: this contributed to delays in supply chain management processes. Procurement and supply chain management processes in some departments very slow; in consequence, most projects were stalled and certain tenders were either suspended or cancelled. Funds for Infrastructure development projects and capacity building programmes that were meant to address socio-economic challenges of the country were not used.

 

The Research Unit recommended that the Executive should provide an implementation plan to the Committee within 30 days, outlining its response to issues that the Committee had reported. The Department of Health in conjunction with its provincial counterparts and National Treasury should develop a comprehensive plan to address challenges with the Hospital Revitalisation programme. Government must develop a project management strategy, expedite the filling of vacancies, and require departments to enhance their budget planning and implementation.

Members expressed concern that the departments were not taking their recommendations seriously and urged the Committee to act swiftly even if it meant approaching the Speaker of the National Assembly and the Deputy President. Suggestions that Ministers of affected departments be called to appear before the Committee and punitive measures for non-complying departments were tabled. The Chairperson noted that the Committee had similar powers to those of the Committee on Public Accounts. It was important to understand fully the Money Bills Amendment Procedure and Related Matters Act 2009 in order to prepare for exhaustive questioning departments on why they needed more money when records indicated that they had under-spent.

Meeting report

Mr Phelelani Dlomo, Researcher, Parliamentary Research Unit, said that the Standing Committee on Appropriations (SCOA) was established in terms of Section 4(3) of the Money Bills Amendment Procedure and Related Matters Act 2009 (Act No.9 of 2009). The Act required the Committee to consider and report on spending issues. The National Treasury was to publish actual expenditure (in terms of section 32 reports).

 

Mr Dlomo said that the national departments were allocated an adjusted budget of R408.9 billion for the 2009/10 financial year. It excluded direct charge. Of the appropriated funds, R118.7 billion was allocated to current payments. R282.1 billion went to transfers and subsidies while R8.1 billion was for capital expenditure. Overall expenditure at the end of the quarter was standing at R304.02 billion of the adjusted budget. After the Government restructuring, the overall budget comprised 43 budget votes.

Two departments reported different expenditure patterns. The Department of Education (DoE) was found to have recorded a spending of 91.3% of the allocation. On the other hand, the Department of Public Service and Administration had recorded a spending of 61.4% of the allocation. Consequently, close scrutiny of Government spending suggested that stricter systems should be put in place to strengthen budget implementation.

Department of Home Affairs (DHA)
The Department of Home Affairs was allocated a total budget of R5.26 billion in the 2009/10 financial year. Its budget comprised four programmes: Administration, Service to Citizens, Immigration Services, and Transfers to Agencies. The highest share of the departmental adjusted budget was allocated to two of its programmes. The Immigration Services programme was allocated R1.49 billion while the Service to Citizens programme got R1.35 billion. The Department reported an expenditure of R3.74 billion (71%) at the end of the third quarter. This was an indication of under-spending.


The Department had spent only R883 million (58.9%) in the Immigration Services programme, because invoices of the Who am I Online project were not submitted and processed. The Department projected an under-spending of R102 million in Services to Citizens because of slow spending in the Smart Card ID project.

Department of Public Works (DPW)
The Department of Public Works was allocated a budget of R6.0 billion.  Its budget consisted of four programmes, each with its own allocation: Administration (R688 million), Provision of Land and Accommodation (R4.42 billion), National Public Works (R884 million), and Auxiliary and Associated Services (R49.2 million).


The Department had under-spent in the National and Public Works and Provision of Land and Accommodation programmes. Under-spending in the latter programme was because of failure to make payment to the Property Management Trading Entity. The reason for this was that the Entity had not yet submitted invoices regarding its client departments. Under-spending in the former programme was due to an additional allocation of R91 million made during the adjustment period which had not yet been spent. The Department had been experiencing some delays in transferring funds to other receiving public bodies for Expanded Public Works. Municipalities and Provinces that had not met their performance threshold had not yet received their grants.

Department of Public Service and Administration (DPSA)
The DPSA was allocated a budget of R429.8 million after adjustments. The Department was responsible for seven programmes, each with its own allocation:

Administration (R115.3 million)
Human Resource Management and Development in Government (R69.9 million)
Management of Compensation of Employees (R117.3 million)
Information and Technology Management (R40.1 million)
Service Delivery Improvement throughout Government (R34.3 million)
Government for Public Service and Administration (R38.4 million)
Centre of Public Service Innovation (R14.2 million)

The Department had spent only R265.4 million (61.8%) of its budget at the end of the third quarter. Under-spending was reported on Human Resources Management and Development in Government in which the Department had has spent 39% of the programme budget. This was attributed to transfers to the Public Service Sector Education and Training Authority (PSETA) that were never made.


Department of Arts and Culture (DAC)
The Department was allocated a sum of R2.6 billion for the 2009/10 period after adjustment. It was responsible for six programmes, each with its own allocation:

Administration (R144 million)
Arts and Culture in Society (R393 million)
National Language Service (R93.3 million)
Cultural Development and International Cooperation (R214 million)
Heritage Promotion (R1.21 million)
Archives, Heraldry and Libraries (R568 million)

The Department had spent R1.6 billion (62%) at the end of the quarter. This was largely due to under-spending in transfer payments which were not yet paid to certain projects. It was felt that the Department must address this problem as it had a potential to affect many areas of service delivery in Government. The under-spending was also attributed to the delays and slow spending on capital works under the Heritage Promotion programme. Blame was squarely put on the delays in the submission of evaluating proposals by cultural public entities.

The Department had reported an over-spending on the Archives, Heraldry and Libraries programme. It had indicated that this would be corrected by means of virements from other areas where it was under-spending. The Department envisaged under-spending in transfers for household projects because of vacancies. These projects included programmes such as Investing in Culture, which was meant to be the driving force of the Government’s poverty alleviation strategy. The Department had only spent 33% of the R93 million which was allocated for this project. It was noted the Department had a structure that was established to oversee 2010 FIFA World Cup projects, but its dissolution remained unclear.

Department of Education (DoE)
The DoE received a total budget of R21.8 billion after adjustments. In the third quarter, it had spent R19.9 billion (91%) of the allocated budget. This represented huge over-spending in the overall budget. The reasons for over spending included the R17.1 billion (97.9 per cent) which was transferred to higher education institutions; and the R187.8 million (84 per cent) spent on Further Education and Training - this included the unexpected cost escalation of moderators and examiners in the last year. The over-spending of 97.9% in transfers and subsidies was due to the transfer payments to higher education institutions. This was a once-off payment for all tertiary institutions. This excluded allocations to the Universities of Venda and Walter Sisulu which had not submitted their business plans related to institutional merger.

The over-spending for capital assets emanated from the higher than expected expenditure of 84.7% in the Further Education and Training programme. The high spending in this area was due to the upgrading process of the examination system and the installation of phone lines which were required in the new office buildings. The under-spending in current payments was due to the cancellation of tender for literacy and numeracy workbooks from Grade 1 to 6 due to irregularities. The delay in the delivery of literacy and numeracy workbooks undermined the commitment of the Government’s effort to prioritise education.

Department of Health (DoH)
R18.4 billion was allocated to the DoH after adjustments.  A substantial of this budget was given to Health Services (R9.9 billion) and Strategic Health (R5.7 billion). The budget growth for the Strategic Health programme was driven by rolling out HIV and AIDS and STI treatment coverage and implementing dual therapy of mother to child. The largest share of the budget amounting to R17.2 billion was allocated to transfers and subsidies: R1.1 billion to current payments and R26.4 million to capital expenditure.
At the end of the third quarter, the Department had spent R12.9 billion (69.86%) of its budget. The Department had under-spent on its Health Services programme budget due to slow spending in Hospital Revitalization grant. The expenditure performance of this grant indicated that the Department was experiencing challenges in managing its grant. The Department was projecting an under-spending of R385 million at the end of the fourth quarter. The reasons for under-spending in the Health Services programme included the slowness of the revitalisation process; delays in awarding tenders by the Department of Public Works (DPW) in some hospitals; the low turnover of claims by constructors; and delays in transfers to certain entities because of non-submissions of necessary documents.

  
Department of Transport (DoT)
An allocation of R24.2 billion was made to the DoT for the 2009/10 financial year after adjustments. The Department was responsible for seven programmes, each with its own allocation:

Administration (R240 million)
Transport Policy and Economic Regulations (R50 million)
Transport Regulation and Accident (R403 million)
Integrated Planning and Inter-sphere Co-ordination (R9 billion)
Transport Logistics (R26.9 million)
Public Transport (R14.3 billion)
Public Entity Oversight (R182.4 million)

The Department had spent R19.1 billion (78.8%) at the end of the third quarter. The Department has under-spent in some programmes, including Transport Logistics and Public Entity Oversight. The procurement management and supply chain process of the DoT seemed to be very slow. A number of projects were stalled due to inefficient supply chain management systems of the Department.

Reasons for over-spending included over-spending in the Arrive Alive campaign, Presidential inauguration, and electronic content management.

The Department spent 85.6% in the Transport Regulation and Accident programme instead of the projected 38.1%.

Department of Cooperative Governance and Traditional Affairs (CoGTA)
A sum of R36.5 billion was made available to CoGTA after adjustments. Provincial and local government transfers dominated the budget of this Department. The Department comprised seven programmes, each with its own allocation:

Administration ((R184.3 million)
Governance, Policy and Research (R47.1 million)
Urban and Rural Development (R9.5 million)
Systems and capacity building (R155.4 million)
Free basic Services and Infrastructure (R39.7 million)
Provincial and Local Government transfers (R35.9 billion)
Fiscal Transfers (R101.9 million)

The Department had spent R25.5 billion (69.86%) at the end of the third quarter. It had under-spent by R1.9 billion (5%) compared to its projected spending of R27.4 billion. The Department reported an under-spending of R4.7 million on compensation of the budget of the employees because the moratorium was not yet lifted on the filling of vacancies. The under-spending was due to the lack of capacity of municipalities to implement infrastructure projects.

 

Department of Minerals and Energy (DME)
The Department was allocated R4.7 billion in the 2009/10 financial year after adjustments. A substantial share of this budget amounting to R3.6 billion was allocated to Associated Services which comprised only transfers and subsidies. Other programmes with their own allocations were:

Administration (R251.3 million)
Promotion of Mines Safety and Health (R133 million)
Mineral Regulations (R168 million)
Mineral Policy and Promotion (R64.5 million)
Hydrocarbon and Energy Planning (R55.2 million)
Electricity Nuclear and Clean Energy (R339.9 million)

The Department had spent R3.3 billion (71.07%) at the end of the third quarter. Whilst the overall spending of the Department seemed impressive, the Electricity, Nuclear and Clean Energy programme had spent only R141.7 million (47.7%) of its budget. An area of concern was the slow spending in the Integrated Nation Electrification project. The Department was allocated R149 million to deal with backlogs in the electrification of clinics and schools; but it has reported 0% expenditure in these areas at the end of the third quarter. The Department, furthermore, could not provide sufficient information regarding its spending trends.

 

Department of Agriculture, Forestry and Fisheries
This Department was allocated R3.8 billion after adjustments. It had responsibility for six programmes, each with its own allocation:

Administration (R414 million)
Production and Resource Management (R331 million)
Agriculture Support Services (R2 billion)
Trade and Agricultural Development (R76.7 million)
Food Safety and Bio-security (R338.4 million)
Forestry (R579 million)

The Department had spent only R2.3 billion (61.41%) at the end of the third quarter. It had reported zero expenditure in the Forestry programme. No explanation was provided for this. Lastly, there were other areas where 0% spending was reported. These included: out-sourced research, Food Bank SA, AgriBEE and the Perishable Products Expert Control Board. Only R146 million was spent for Mafisa which was below the allocated R367 million. This remained a concern since the aim was to uplift the emerging farmers.


Department of Water Affairs
The Department was given a sum of R7.8 billion after adjustments. The Forestry function had been shifted to the reconstituted Department of Agriculture, Forestry and Fisheries. Administration received R812.5 million; Water Resources Management received R4.1 billion; and Water Services was allocated R2.8 billion. The Department reported an expenditure of only R5 billion (64.67%) at the end of the third quarter of 2009/10.


Under-spending was the result of an amount of R481.5 million not spent due to vacancies and unpaid invoices while R286.2 million was not spent  since the schools and clinics backlog grant had been reclassified from capital payments to transfer payments. Furthermore, the Department was allocated R611.5 million for the Bulk Infrastructure grant, but had only spent R364.2 million (59.6%) at the end of the third quarter. Lastly, the Department was projecting an under-spending of R372 million (5%) at the end of the financial year.

 

The research findings were as follows:
There was a lack of action on the recommendations of the Committee. This resulted in recurrence of findings of issues previously raised by the Committee remaining unresolved.


Government departments experienced challenges in managing conditional grants. Slow spending was reported in a number of conditional grants.


Late submission and quality of business plans, high vacancy rate, skills shortage, delays in tender processes, and delays in both submitting and signing necessary documents continued to impact negatively on government spending.

There was a culture of depending on incumbents who held in an acting capacity key positions in some Government departments. This contributed to delays in supply chain management processes.
The procurement management and supply chain management processes in some departments were very slow. Consequently, most projects were stalled and certain tenders were either suspended or cancelled.
Funds for Infrastructure development projects and capacity building programmes that were meant to address socio-economic challenges of the country were not used.

The Research Unit recommended:

The Executive should provide an implementation plan to the Committee within 30 days outlining its response to issues that the Committee reported.


The Department of Health in conjunction with its provincial counterparts and National Treasury should develop a comprehensive plan to address challenges that were associated with Hospital Revitalisation programme.


The culture of rolling over funds for infrastructure projects required Government to develop a project management strategy as soon as possible.


Government must expedite the filling of vacancies and must improve its turnaround times for recruitment.
There was a need for departments to enhance their budget planning and implementation.

Discussion
Mr M Swart (DA) commented that the lack of action on recommendations of the Committee should be taken seriously and that departments should be called to answer to the Committee.

The Chairperson agreed with Mr Swart and suggested that under-performing and under-spending departments should be called to account. He further told the Committee that Parliament was preparing a draft document to train members in understanding the Money Bills Amendment Procedure and Related Matters Act 2009. He suggested that the Speaker of the National Assembly should appear before the Committee to inform it of the departments that did not take the Committee’s recommendations seriously.

Mr L Ramatlakane (COPE) suggested that the interrogation of under-performing departments should be done in the fourth quarter as the Committee would get better answers from them. So it was important for the Committee to also wait for the final report from the National Treasury which would be released in the fourth quarter. He stated that this would send a message to the departments that non-compliance carried consequences. He suggested the Committee should look at prescripts that should be administered to the departments for non-compliance.

Dr P Rabie (DA) stated that at the end of the fourth quarter money would be spent by the under-spending departments but that would not be a guarantee of service delivery. The duty of the Committee was to monitor expenditure throughout the year. So if the Committee recommendations were not given serious attention, drastic steps should be taken as this could not be allowed to happen every year.

Ms R Mashigo (ANC) suggested that letters regarding the Committee’s recommendations should be written to the affected departments. If they did not respond, the Speaker would be approached to let him know the departments that did not respond. And if that did not work, the Committee would speak to the Deputy President.

Mr Swart said that the National Treasury should send the Committee the fourth quarter report so that Members could compare it with the third quarter one. The departments would be interrogated thereafter.

Ms M Tlake (ANC) wanted to know at what stage would the Committee start to punish under-spending and under-performing departments, because every year the Committee made recommendations and the departments gave budget speeches.

The Chairperson said that the Committee had powers similar to that of the Committee on Public Accounts (formerly SCOPA) but Members should first be educated about the Money Bills Amendment Procedure and Related Matters Act so that the departments could be questioned thoroughly on why they needed more money when the first financial year records indicated they had under-spent.

The meeting was adjourned.

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