Expenditure Report analysis: Third Quarter 2010/11: Research Unit briefing

Standing Committee on Appropriations

14 March 2011
Chairperson: Mr E Sogoni (ANC)
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Meeting Summary

The Committee’s Researcher, Mr Phelelani Dlomo, presented an analysis of the Expenditure Report of departments for the Third Quarter 2010/11. He outlined the spending patterns of named departments, and isolated those eleven with the most critical issues and the lowest spending. He indicated that some of the figures, especially for Department of Home Affairs, were misleading because it had grouped some programmes together. The most frequent problems were related to funds not being transferred to programmes once they were received, or shifting of funds between programmes. The Committee’s previous recommendations to some departments had not been heeded, resulting in recurrent problems with lack of transfers during this quarter, which would then lead to spending spikes in the fourth quarter, the fact that the Department of Public Works had failed to transfer incentive grants to some provinces, which hindered job creation and skills development programmes, and failure to comply with the prescripts of section 43 of the Public Finance Management Act, setting 8% limits on virements, and prohibiting capital allocations from being used to defray current payments. Most underspending occurred in the goods and services areas, although some also appeared in current payments. Most transfers and subsidies were already made, and Statistics South Africa had already overspent on the Corporate Relations programme.

Members noted that funds intended to boost job creation were not being properly spent, and this should be reflected in the analysis. Members noted that the Department of Women, Children, and People with Disabilities had not submitted any Section 32 reports to National Treasury, who should support this department to ensure compliance. Members made comments on what explanations were needed by various departments, and asked why there was not much detail provided on the Departments of Justice and Constitutional Development, and Defence and Military Veterans, and called for further progress reports on named programmes from the Department of Public Works. Members also wanted National Treasury to explain its allocations, and why it was not able to improve the situation, as also to explain why National Treasury had not spent the allocated amounts on infrastructure. Departments would be asked to explain the impact of their underspending, which related to non-achievement on their strategic plans, and to give projections for the end of the year. Members noted that they would prefer Cluster officials to be present for quarterly expenditure reports, and agreed that National Treasury officials should be present when the departments briefed the Committee. Members took note what explanations would be required from various departments, and also noted that some would be asked to brief the Committee in the forthcoming week, and some when the Committee considered the Appropriation Bill. Members also wished to interview the Department for Women, Children and People with Disabilities to try to assist it.

The Committee adopted Minutes of the meetings held on 15 February, 18 February, 3 March and 9 March 2011, with minor amendments.

Meeting report

Chairperson’s opening remarks:
The Chairperson thanked Members of the Committee on their work towards the passing of the Division of Revenue Act (DORA), which had now been forwarded to the National Council of Provinces (NCOP). He noted that the Committee would shortly be dealing with the Appropriation Bill. He reminded Members that in terms of the Money Bills Amendment Procedure and Related Matters Act, No 9 of 2009 (MBAPRMA), portfolio committees must invite sector departments to present their strategic plans before the Committee dealt with the Appropriation Bill. The Committee therefore could only deal with the Appropriation Bill after the constituency period, from 1 to 8 April 2011. In the following week the Committee would hold hearings on expenditure in the third quarter of 2010/11. This should give departments enough time to plan and prepare. The Committee had agreed, and conveyed to departments, that departments should submit their presentations three days before the hearing, and if this was not done then the departments would not be allowed to make their presentations.

Expenditure Report for Third Quarter of 2010/11 financial year: Parliamentary Research Unit briefing
Mr Phelelani Dlomo, Committee Researcher, Parliamentary Research Unit, gave a briefing summarising and analysing the expenditure of various departments for the third quarter of 2010/11. His briefing included a detailed overview of government spending and spending patterns of national departments.

Mr Dlomo listed the eleven departments selected as the lowest spending, which were the Departments of Communications (DOC), Water Affairs (DWA), Home Affairs (DHA), Basic education (DBE), Rural Development and Land Reform (DRDLR), Health (DOH), Public Works (DPW), Department of Police (DOP or SAPS), Defence and Military Veterans (DDMV), Justice and Constitutional Development (DOJCD) and Statistics South Africa (StatsSA). Mr Dlomo’s presentation outlined the spending percentages of the named departments and programmes, together with the reasons for underspending (see attached presentation for full details). He noted that the two most frequently recurring reasons for underspending were that, although departments did receive allocations of funds, these funds were not transferred to the relevant programmes in time, or that the funds were shifted around programmes. He also explained that Department of Home Affairs’ figures were a little misleading, because some of the figures seemed to suggest overspending, but the systems used were in fact grouping a number of programmes together as one.

Mr Dlomo then summarised the findings on the spending. Often, there was no action taken on the Committee’s previous recommendations, which resulted in recurring issues, including the vacancy rates and delays in the procurement processes. A number of transferred payments were not made to the receiving entities at the end of the third quarter, and this might then lead to a spike in payments in the last quarter (the March Spike). He noted that the Department of Public Works had not yet transferred the incentive grant to some provinces and municipalities, especially those that were still struggling to meet the targeted threshold. This incentive grant aimed to create labour intensive employment, aiding the job creation and skills development programmes.

Mr Dlomo further noted that departments tended not to comply with Section 43 of the Public Finance Management Act (PFMA) when funds were shifted. This manifested itself in shifting or virements that exceeded the 8% benchmark that was set under the Act. In some instances, funds were shifted from the capital and transfer budget to defray current payments, which was not permitted. Most of the under expenditure had been identified in the areas of goods and services, with some programmes showing under-expenditure in current payments. In respect of transfers and subsidies, 99.29% had already been spent. He also pointed out that StatsSA had already, by the third quarter, spent more than its allocated budget for the Corporate Relations programme.

Mr M Swart (DA) felt there were many items on these budgets that were intended to boost job creation, which was a priority for government, but were not being used properly by departments.

The Chairperson felt that this issue should be reflected in the findings and analysis document.

Mr Swart noted that no PFMA Section 32 reports had yet been submitted to National Treasury (NT) by the Department of Women, Children, and People with Disabilities, making it difficult for the Committee to know if it was under-or over-spending. He asked that NT should provide this department with the necessary support, in order to ensure compliance, especially since this department had complained about lack of capacity. He asked that NT should submit a report to the Committee as to how it intended to ensure compliance by this department.

Dr P Rabie (DA) said StatsSA was very important in training other departments and therefore needed to have sound policies. He said that StatsSA must therefore provide more information on the Survey Operations Programme spending. He noted that the DRDLR had only spent 11,77% of its allocations, and added that the Restitution and Land Claims Settlement programme of this department also must be investigated, since its spending was 30% over budget.

Ms R Mashigo (ANC) pointed out that the analysis document presented by the Committee Researcher contained two different figures in respect of the budget allocations for StatsSA and she asked for the correct amounts.

Mr Dlomo explained that the different amounts were the result of a typing error, and that of the R2.1 billion allocated to StatsSA, it had managed to spend R1,58 billion.

Ms Mashigo also asked for clarity on the Departments of Justice and Constitutional Development and Defence and Military Veterans, since not as much detail was provided for these two.

Mr Dlomo said that detail on these two departments was not included in his presentation because they were not facing more critical issues than the other nine departments. He asked that Members should refer to the analysis document for further information on those departments.

Ms Mashigo further noted that Department of Public Works had previously been asked by the Committee for more information on a Tshwane programme, because significant funding was allocated for this programme, and that information should be requested again.

Mr J Gelderblom (ANC) said the Department of Water Affairs should be asked about the Regional Management programme, and that both this department and DRDLR should be invited to address the issues relating to rural development.

Mr G Snell (DA) suggested that during the hearings NT should explain why it was still allocating funds to departments that were not complying with the PFMA. The departments should explain to the Committee what impact their lack of spending had on their achievement of government priorities, as addressed in their strategic and annual performance plans. The departments must also bring their projections before the end of the financial year. 

The Chairperson asked Mr Snell to give examples of the issues to which he was referring.

Mr Snell cited that the Department of Police had shifted funds from the capital budget to defray current payments. He also said that he wanted to hear what NT had done to ensure compliance by the provincial departments. NT and the departments were seemingly dealing with recurrent issues, but were not solving them, and they must explain why there was no service delivery on the ground.

The Chairperson said when NT came before the Committee to present on the third quarter expenditure of 2010/11 it had used a different format. In the past, a Cluster official came to the committee hearings and meetings to explain the issues, but in the most recent presentations only senior officials had attended. The Committee had clearly informed NT that Cluster officials should be present to provide more detail, rather than just a summary, and NT had agreed. This request would be repeated in the invitations to the other departments.

The Chairperson noted that the Department of Communications now was under new leadership, and that he hoped that matters there might have improved, even if that department had not fully recovered.

The Chairperson quoted from page 9 of the NT Report on the Third Quarter Expenditure 2010/11, for Vote 4, noting that an amount of about R2 billion to R3 billion would not be spent on infrastructure. This report showed that NT was also failing as a department.

The Chairperson added that in the following week there would be sittings in the afternoons, and that the Committee would only be able to meet with departments in the morning. He referred Members to the Parliamentary programme. He then outlined which departments would be called to public hearings. The first would be the Department of Communications. Stats SA would be asked to attend, because it was responsible for monitoring the country’s economy and the census programme. The Department of Water Affairs would be called in. The Department of Rural Development and Land Reform would be asked to explain the shifting of funds. The Chairperson read out Section 43(1) and (2) of the PFMA, clearly pointing out that a benchmark of 8% was allowed. However, DRDLR had shifted about 50% of funding, and would be asked to explain this to the Committee.

The Chairperson noted that the report on the Department of Public Works was not clear on the allocations of incentive funds under the Expanded Public Works Programme (EPWP), that funds allocated to provinces were also not clear, and that 60% had been allocated to local government. He said that the Department of Police seemed to understand how the Auditor-General South Africa approached matters and the books were balanced, but the content of this department’s budget was not clear.

The Chairperson said he did not have a clear indication from Members whether they wished to invite NT to attend to speak to compliance issues, or to explain the spending patterns.

Ms Mashigo enquired about the Integrated Justice Programme, noting that the Department of Police and Department of Justice and Constitutional Development, both of whom were in the same Cluster, were blaming each other for their failures. The Department of Police would have to explain its programmes, and she cautioned that Members should be aware that this department might try to blame DOJCD for under or over spending. 

Mr Dlomo replied that the Integrated Justice Programme was budgeted for under the Department of Police, and this was not regarded as a Cluster programme. However, he was not sure if the issues that Ms Mashigo had raised were related to the programme. The backlog of court cases led to the overcrowding of prison cells, and this might arise because of the unnecessary pressure that the two departments were putting on each other.

The Chairperson explained that the Committee did not send standard letters to departments, but that each department would be asked to explain and give an account of the specific programmes that were of concern.

The Chairperson thought that the Department for Women, Children and People with Disabilities should also be invited to appear before the Committee, not to try to put it on the spot, but rather to try to assist this department with its issues. He wondered whether NT and this department should be invited now, or when the Committee dealt with the Appropriation Bill.

Members of the Committee agreed with the Chairperson that the Department of Women, Children and People with Disabilities should be invited to Parliament, but did not specify when.

The Chairperson added that there were still a number of other departments who had some serious issues, but they had not been invited because of time constraints. These departments included the DBE, DOH and DOT. They would be invited to brief the Committee when the Committee dealt with the Appropriation Bill.

Mr Swart asked if a NT representative should be invited at the same time that the departments would brief the Committee.

The Chairperson said that he would not push the issue if the Committee did not agree with inviting NT, although he would prefer that NT be present.

Mr Snell agreed that NT should come and explain issues that were raised. He added that the State Information Technology Agency (SITA) should also be invited some time, because without information government could not manage to deliver, and there were already delays in a number of areas.

The Chairperson felt that NT should be explaining two programmes to the Committee. The Neighbourhood Partnership Development Grant was not understood by municipalities, who lacked capacity. The Infrastructure Development Improvement Programme was also supposed to assist with job creation and infrastructure development. However, it seemed that NT would not be able to spend between R2 million and R3 million on these programmes, so if felt that NT needed to explain what it was doing to improve these programmes.

The Chairperson noted that the hearings on the third quarter expenditure programme would end on 30 March 2011.

Committee Minutes: adoption
Members of the Committee agreed that the Committee needed a follow up mechanism, as agreed to during the Workshop on the Strategic Plan.

Members adopted the minutes of meetings on 15 February 2011, 18 February 2011, 3 March 2011 and 9 March 2011, with minor amendments.
The meeting was adjourned


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