National Budgets and Expenditure Report for 3rd Quarter 2010/11 Financial Year: National Treasury briefing

Committee: Standing Committee on Appropriations

Chairperson: Mr E Sogoni (ANC)

Date of Meeting: 14 Feb 2011

Summary

The Deputy Director-General: Public Finance and the Senior Technical Assistant of the National Treasury briefed the Committee on the national budgets and expenditure report for the third quarter of the 2010/11 financial year.  The detailed data was presented to the Committee on 9 February 2010 and the purpose of the briefing was to highlight the most significant spending trends of selected Government Departments.

The report included the overall expenditure trends and a sectoral analysis of expenditure patterns for central government and administration services, financial and administrative services, social services, justice, crime prevention and security and economic services and infrastructure.  In aggregate, the national Departments had sent R597.4 billion (73.1%) of the adjusted total budget of R817.7 billion during the period April to December 2010.

Members were most concerned over the reasons given by Departments to justify the under-spending of the funds provided and the role of the National Treasury in ensuring that Government entities spent funding effectively and efficiently.  Other questions asked by Members concerned the failure of the Department of Women, Children and People with Disabilities to submit financial reports; the interaction between the National Treasury and the Department of Monitoring and Evaluation in the Office of the President; the inclusion of invoices received but not paid in financial reports; the impact of the withholding of funds on jobs and the implications of virements.



Minutes

The briefing was attended by the Chairperson of the Select Committee on Finance Mr C de Beer (ANC, Northern Cape) and Members Mr B Mashile (ANC, Mpumalanga) and Mr T Chaane (ANC, North-West).

Briefing by the Department: National Treasury
Mr Andrew Donaldson, Deputy Director-General: Public Finance, National Treasury, advised that the detailed national budgets and expenditure data for the third quarter of the 2010/11 financial year as required by the Appropriations Act was submitted to the Committee on 9 February 2011.  The briefing summarised selected spending trends for the period April to December 2010 (see attached document).

The Department was making progress with the system changes necessary to align and integrate reports with the provisions of Section 32 of the Public Finance Management Act (PFMA).

In aggregate, the national Departments had spent a total of R597.4 billion (73.1%) of the adjusted budget of R817.7 billion by the end of the third quarter. 
7:36 – 13:20

Mr Robert Clifton, Senior Technical Assistant, National Treasury, summarised the expenditure trends of the ten Departments that reported expenditure of less than the benchmark percentage of 75%.  These Departments were Police (72.8%); Defence and Military Veterans (70.3%); Correctional Services (65.4%); Justice and Constitutional Development (69.1%); Water Affairs (61.83%); Home Affairs (64.3%); International Relations and Cooperation (65%); Public Works (50.6%); Statistics South Africa (50%) and Rural Development and Land Reform (67%).

The report analysed the expenditure of the five most significant Departments on employee benefits and on capital payments.  An analysis of the spending patterns in the programmes of Departments to provide central government and administration services, financial and administrative services, social services, justice, crime prevention and security services and economic services and infrastructure was provided.

The National Treasury was reviewing the rationale behind the inclusion by certain Departments of information, communication and technology (ICT) projects in Programme 1 (Administration) and the reasons given by Departments to justify under-spending.  Reasons for not spending the allocated funds included a lack of technical and management capacity, the failure of provinces to meet the minimum qualifying criteria of the infrastructure development programme, delays in the issuing of invoices by the Department of Public Works and the lack of or slow delivery of services by the State Information and Technology Agency (SITA).  The Department of Women, Children and People with Disabilities provided no expenditure data to the National Treasury.  Additional funds provided to the Department of Agriculture, Forestry and Fisheries for disaster relief remained unspent.  The Department of Health had not spent the funding provided for the “Love Life” HIV/AIDS prevention project and only 61% of the Hospital Revitalisation Grant was utilised.  The Department of Higher Education and Training had spent only 30.8% of the budget provided for the skills development programme due to the delay in establishing the Quality Council for Trades and Occupations.  The Department of Defence had cut expenditure on machinery, equipment and premises in order to provide funds to implement the new salary dispensation implemented in December 2009.  The Department of Communications had closed down the 112 Emergency Call Centre project but it was understood that the project would be revived.  The Department of Human Settlements had spent only 10% of the Rural Household Infrastructure Grant (RHIG) as a result of delays in implementing the programme.

Discussion
The Chairperson observed that the Department of Women, Children and People with Disabilities had failed to provide expenditure reports in the previous fiscal year as well.  He asked who was responsible for accounting for the funding provided by Government to the Department.

Mr Donaldson confirmed that the National Treasury had not received any monthly or quarterly reports to date.  He undertook to investigate the matter and report back to the Committee.

Mr De Beer asked if the National Treasury investigated the reasons given by Departments for under-spending.  Members would find it useful if the spending trends of Departments over a period of time and the findings of the Auditor-General were provided by the National Treasury in briefings to the Committee.  Although regular meetings were held at the provincial level, there appear to be a communication gap at the regional level.  He expressed concern over the challenges reported for the Extended Public Works Programme (EPWP).

The Chairperson understood that the questions asked by Mr De Beer were asked in the context of the role of the National Treasury.  Questions from Members concerning the progress made by Departments should be directed to the accounting officers of the respective Departments.

Mr Mashile asked how the Monitoring and Evaluation Department in the Presidency linked up with the expenditure reports produced by the National Treasury.  The new growth path identified the development of skills and job creation to be key factors.  He was concerned over the excuse of a lack of technical capacity put forward by the Department of Public Works for the lack of progress in implementing the EPWP.  He asked for clarity on the reason given by the National Treasury for the slow spending on the Infrastructure Development Improvement Programme being the failure of provinces to meet the minimum qualifying criteria.  He was a member of Consulting Engineers of South Africa, which had the capacity to provide assistance to provinces in this regard.  In the case of the Department of Human Settlements, funds transferred were recorded as expenditure but in fact the funds remained unspent.  He suggested that the Monitoring and Evaluation Department was invited to future briefings to provide political input to the discussion on the expenditure reports.  He asked if the reports submitted by the provincial authorities to the National treasury included the unprocessed invoices received.

Mr M Swart (DA) referred to the slow expenditure rate and consequent withholding of the Technical Schools Conditional Grant to seven of the nine provinces.  He asked which two provinces had received the full grant.  He was concerned that requests from Departments for additional funding were granted by the Committee without considering the ability of the Department concerned to fully utilise the additional funding.  He pointed out that the approval of budgets had to be in accordance with the Money Bills Act.

Mr J Gelderblom (ANC) referred to the Department of Public Works and said that the excuse of a lack of technical and management capacity, the failure of providing timeous invoices and the failure of municipalities and provincial authorities to meet quarterly occurred year after year.  He asked what the National Treasure was doing to address these issues.

Ms B Ngcobo (ANC) asked if the National Treasury was only looking at the expenditure trends or if the performance of Departments were considered as well.  An example was the Department of Justice and Constitutional Development.  The Public Service Commission had informed the Committee that 50% of the Department’s budget was spent on litigation on an ongoing basis and she questioned whether such expenditure reflected the actual performance of the Department.  She acknowledged that the National Treasury monitored the other Departments but wanted to know who monitored the performance of the Treasury.

Ms R Mashigo (ANC) queried the impact of the slow expenditure of the Neighbourhood Development Partnership Grant (NDPG) on the expenditure pattern of the Rural Household Infrastructure Grant (RHIG).

Mr L Ramatlakane (COPE) observed that the excuse of insufficient technical and management skills appeared to be given as a general reason for under-spending by Departments.  He wanted to know what the actual reasons were.  He referred to the report on the expenditure of the National Treasury (Vote 9) and the possible under-spending of R2 billion to R 3 billion of the Infrastructure Development Improvement Programme (IDIP).  He wanted to know what was meant by the ‘lack of appropriately qualified consultants available to provide technical assistance’ given as the reason for the under-spending.  He asked what progress had been made with the implementation of the Integrated Financial Management System (IFMS).  He observed that the same excuses were given for the repetitive under-spending on certain programmes, for example the Hospital Revitalisation Programme of the Department of Health.  He referred to the under-spending of the Department of Basic Education (Vote 14) on the printing and distribution of workbooks to schools and wanted to know if the problems were caused by a lack of internal capacity or the cancellation of tenders.  The South African Police Services (SAPS) (Vote 24) blamed the delay in implementing the Integrated Justice Programme on the slow procurement by SITA.  The National Treasury was aware of the roll-out programme of SITA and he wanted further clarity on the comment made.  He noted that the National Treasury had suggested that the spending of funds provided for emergencies to the Department of Agriculture, Forestry and Fisheries needed to be reviewed.  It was not clear if the Department had requested the funds or if it was made available by the Treasury.  He withdrew the question concerning the funding provided to the Department of Human Settlements for the rehabilitation and repair to shoddily-built houses after the Chairperson suggested that the question was directed at the Department.

The Chairperson explained that the questions asked by the Members were in the context of the responsibilities of the National Treasury provided for in the PFMA.  The PFMA required the National Treasury to provide assistance to Departments.  The Departments had certain responsibilities as well but it was difficult for Members to distinguish whether Departments or the National Treasury were accountable.

Responding to the questions concerning the role of the National Treasury, Mr Donaldson explained that the timeframes of the budgetary and reporting processes meant that the first quarter expenditure information only was available when budgets were prepared in September/October.  The National Treasury followed up problematic issues with the relevant Departments when information was provided, discussions were held at the beginning of the financial year in April/May and the Departments were asked for explanations of the outcomes of the previous year.  Where necessary, the relevant Minister was advised.  The effective performance of a Department, the level of service delivery and providing value for money were considered.  Where the spending trends indicated persistent under-spending, the performance of the relevant Department was monitored and discussions were held with the responsible management.  The provincial Treasury Departments were engaged when there were instances of under-spending of provisional grants.

Mr Donaldson explained that the funds transferred by the Department of Human Settlements were and the actual amounts spent were included in the quarterly provincial reports.  He conceded that the reporting obligation did not provide sufficient detail as the provinces transferred funds for housing provision to the local government authorities.  He agreed that more could be done to improve the mechanisms to track Departmental spending but gave the assurance that the issue was being dealt with by the National Treasury.

Mr Donaldson said that interaction between the National Treasury and the recently established Monitoring and Evaluation Department in the Office of the President was taking place.  The Department was in the process of developing capacity.  It was relatively easy to link expenditure with the desired outcomes for certain programmes but more complex programmes (such as municipal infrastructure developments and certain Trade and Industry initiatives) had long term benefits.  The National Treasury was in the early stages of developing tools to measure outcomes against expenditure patterns.

Mr Donaldson agreed that the excuse of a lack of technical capacity was not good enough and that it was necessary to investigate further to determine the actual underlying problem.  The Treasury had found that the actual problems differed widely and he suggested that the Committee referred the question to the relevant Department.

Mr Donaldson explained that the NDPG provided support for the projects initiated by 90 municipalities.  Municipalities had to apply for the grant but needed to involve private investment as well.  He anticipated that spending would accelerate in future.  Most of the IDIP projects administered by the National Treasury were completed on the 2009/10 fiscal year.  The administration of the IDIP grants was transferred to the provinces and the initial slow spending pattern was attributed to delays in the tender process.  The grant was transferred to provinces to support infrastructure development, road and health programmes.  In many cases, the under-spending on infrastructure was attributed to delays in the awarding of contracts by provinces.  As part of the budget process, the National Treasury and the provincial authorities were discussing the withholding of funding provided for infrastructure development where the province clearly did not have the capacity to apply the funds.  He anticipated an improved spending pattern for infrastructure development in the following year.  Budget adjustments were made in accordance with the PFMA regulations and approved by the Committee.  Although the PFMA made adequate provision for the breakdown of programmes, not all expenditure could be accurately predicted.  A certain degree of discretion in adjusting funding was necessary.  In most cases, expenditure was adjusted in the fourth quarter of the fiscal year.

Mr Donaldson advised that it was prudent to budget for disaster relief to avoid unanticipated expenditure even if the funds were not required.  It was a balancing act between tightening the budgets and making provision for items that cannot be accurately quantified.  The role of National Treasury in combating under-spending was limited as the Chief Financial Officers of the Departments were responsible for the financial management of the entity.  The Committee was responsible for oversight over the National Treasury and the Department had a Public Finance Division in place.  The Auditor-General played a role in overseeing the Treasury as well.

Mr Donaldson was aware that the Department of Health had held back spending on certain projects, pending the appointment of a new Director-General.  There had been interaction between the National Treasury and the Minister of Health and the financial management of the Department had subsequently been strengthened and improved.  He was not able to respond to the question concerning the workbooks for schools and suggested the question was referred to the Department of Basic Education.  His impression was that the workbook project was impressive and cost-effective, despite initial teething problems and a slow expenditure rate.  The project would improve the overall quality of learning material in schools.  He was unable to comment on the questions concerning SITA and the systems provided for the Department of Justice and Constitutional Development.  He reported that the under-spending by the Department of Agriculture, Forestry and Fisheries was caused by delays in making compensation payments to persons affected by natural disasters.  He was aware that the Department of Human Settlements had allocated substantial amounts to the repair of houses but suggested that the matter was taken up with the Department.

Mr M Mbili (ANC) expressed concern over the standard of financial management in Government Departments and felt that the National Treasury had to ensure that Departments had the necessary capacity to spend the allocated funds.

Ms Mashigo agreed that stronger action needed to be taken against Departments that continued to under-spend.

Mr Mashile repeated his earlier question concerning the information available on invoices received but not paid.  He said that most Members of the Committee felt that the National Treasury should intervene and provide assistance to Departments if there were problems.  It would appear that the only intervention taken by the Treasury was the withholding of funds.  He asked what impact there would be on jobs if R2 billion to R3 billion of the IDIP funding were withheld.  The Treasury needed to ensure that the system was functional.  He questioned the information provided concerning the appointment of consultants.

The Chairperson reminded Members that the purpose of the meeting was for the National treasury to highlight the matters arising from the third quarter report rather than a debate on issues that should be raised with the Departments concerned.

Mr De Beer asked if the information provided by the National Treasury was made available to the Parliamentary Committees responsible for oversight over the Departments.  He suggested that the Chairpersons of the Committees were invited to attend future quarterly briefings by the National Treasury.

Mr Donaldson explained that the reports reflected actual expenditure transactions.  The financial management system did make provision for recording invoices received but not paid but this information was reflected in the annual financial statements rather than in the monthly and quarterly reports.  The National Treasury would consider including accruals when making changes to the reporting system.  He agreed that the figures in the reports did not reflect the full story.  He pointed out that the withholding of funds was unlikely to withhold jobs.  Funds were not withheld if provinces were in fact implementing the programmes concerned.  A stringent procedure needed to be followed before funding could be withheld and the Treasury was very reluctant to jeopardise any Government project.  Funds that were withheld were available for roll-over to the following fiscal year. 

Mr Donaldson advised that the Rural Household Infrastructure Grant was budgeted for a period of two years.  The under-spending was attributed to problems with the initial administration of the grant but he was aware that certain projects had been transferred to the Department of Rural Development for projects to provide water and sanitation services.  The Auditor-General monitored the capacity of municipalities and the steps taken to obtain accreditation and the training of staff.  The Treasury would like to see an accelerated rate of progress but a great deal of engagement was taking place with the relevant authorities.  The National Treasury responded to invitations to provide support but was reluctant to undermine the authority of the CFO and management.  The responsible Chief Directors of the National Treasury divisions would attend future briefings on the budgets and year-end reports to the Committee.

The Chairperson asked for comment on the effectiveness of Departmental audit committees.

Mr Donaldson replied that the Auditor-General reported on the functioning of the audit committees.

The Chairperson pointed out that Section 77 of the PFMA prescribed the responsibilities of audit committees.

Mr Clifton expressed appreciation for the consideration of the Committee to ensure that the officials from the Treasury were able to attend briefings.  He suggested that a workshop was held later in 2011 to discuss compliance with the Money Bills Amendment Act with regard to the programme and budget structures.

The Chairperson expressed appreciation for the suggestions made by Members to improve the contribution made by the Committee.  There was merit in the suggestion made by Mr De Beer to invite the Chairpersons of the Committees responsible for oversight over the various Departments to future briefings by the National Treasury. He queried the different percentages applicable to the expenditure of the Department of Public Works as it was not made clear if the original or adjusted budget was referred to.  The Committee was concerned that the time and effort invested were not resulting in improvement of performance.  The Committee would find it useful if clarity could be obtained on whether or not the ICT programme developments of the Department of Home Affairs should be classified under Programme 1 (Administration).  More clarity was needed on the purpose and impact of the Neighbourhood Development Partnership Grant on the achievement of the national goals.  The issue of the withholding of funds would arise again during discussions on the division of revenue.  The question was who were best served if funding was withheld and he was not convinced that the withholding of funds served the best interests of the people.  He suggested that the problem areas were identified and dealt with so that the need for withholding funds was prevented.  A workshop was held on virements but further discussions were necessary concerning the role of Parliament versus the need to allow Departments to adjust their budgets.  Virements had to be approved by Parliament but the National Treasury needed to monitor the application by the Departments concerned.  Virements affected the credibility of budgets and raised questions concerning the relationship between the budgeting and planning processes.  He asked how the National Treasury and the Committee could ensure that virements were adequately controlled.  He thanked the delegates for the input provided during the meeting.

The meeting was adjourned.