Appropriation Bill {B3-2011]: Public Service Commission & Financial & Fiscal Commission submissions

Standing Committee on Appropriations

12 April 2011
Chairperson: Mr E Sogoni (ANC)
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Meeting Summary

The Public Service Commission (PSC) presented its submission on the Appropriation Bill, which took the form of an analysis of performance in various areas, for the Departments of Education, Health, Justice, Correctional Services, and Rural Development and Land Reform, and South African Police Service (SAPS). The analyses included financial management and audit issues, how performance information had been captured, human resources and vacancies, compliance with the requirements around signature of performance agreements and evaluation of Heads of Department, the numbers and cost and time taken for disciplinary matters, and issues of anti-corruption. These six departments were selected because of their special responsibilities in respect of the five priorities of government. The explanations of the departments, especially in respect of failure to meet targets and the Auditor-General’s comments, were also given and critiqued. It was noted that many of the departments raised lack of capacity as an excuse, yet most, apart from SAPS, showed high vacancy rates for posts that were funded. The signature of performance agreements and evaluation of heads of department varied widely, with some acceptable explanations having been advanced, but in other cases documents were simply not submitted as required. Another aspect that was of concern was the high cost of suspensions, some of which persisted for a very long time. The PSC also stressed that there were concerns where supply chain management processes were not followed, while simultaneously the financial interest disclosure was also not being done, as this increased the potential for corruption. Finally, the PSC gave a brief comparison of achievement of targets across all departments, and said that it was necessary, firstly, to look to whether the targets were too ambitious, or to isolate any external factors that were preventing departments from reaching those targets, and address them at source. Many departments had difficulty in setting clear targets and performance indicators. Members were concerned about the number of suspensions, and commented that there seemed to be lack of discipline, which should be raised by the Committee with the relevant departments, questioned how the Annual Performance Plan requirements were to be put into effect, and who would be responsible for ensuring compliance with the strategic and annual plans, and with the compliance by heads of department with the various requirements of the PSC. Members noted that the schedules did not include provincial information, asked for more information on the disciplinary issues, and asked where a holistic view of performance at all levels could be obtained.

The Financial and Fiscal Commission (FFC) noted that the Appropriation Bill dealt with the national sphere, but it was important not to lose sight of how those appropriations found their way to provincial and local government level, where they impacted most directly on the people. A brief explanation of Constitutionally Mandated Services (CMS) was given, and it was stressed that every department or system impacted on others and must be viewed holistically. Sections 214 (a) to (j) of the Constitution, read with the assignment of functions to different spheres, made it clear that there must be a link between the Appropriation and Division of Revenue Bills. The FFC was concerned about the conditional grants. These were administered by the national departments, but spent by the provincial departments, and the FFC urged that national departments should be taking greater responsibility for the failure at provincial or local departments to spend and provide services. Concurrent functions created a problem, but this was partially because national departments had not defined what norms and standards were expected from those bearing concurrent responsibility, so that point at which the problem arose should be isolated and addressed. A schedule was presented of the appropriations over a number of years, indicating the amounts allocated to Constitutionally mandated services, and how allocations to administration, such as Occupation Specific Dispensation, might remove money from these services if not properly handled. The necessity of ensuring sustainable allocations was stressed. Throughout, there was a need to ensure improvement in quality of services. The FFC summarised that although there were efficient allocations, there were serious problems with using those resources as intended, which was further affected by the amount of fruitless and wasteful expenditure and failure to fill posts. It urged again that national departments should take more responsibility for conditional grants. Members agreed with the FFC’s concerns and also discussed briefly whether it was correct that grants should be withheld for lack of spending, or whether there was another way in which the problems could be better addressed, pointing out that withholding was hindering the Committee in ensuring that services were delivered, and should be used only as a last resort. Members also discussed unfunded mandates and noted that FFC would include submissions on them in its report on the Division of Revenue Bill later in the year. Members also highlighted that not sufficient resources, time, or human capacity were being put to planning properly,  and this needed further discussion.

Finally, the Committee asked for a brief written report from both the PSC and FFC on their current status, with particular reference to the unfilled Commissioners’ posts.

Meeting report

Appropriation Bill: Public Hearings
Public Service Commission (PSC) submission
Ms Moira Marais-Martin, Public Service Commissioner, noted that the former Chairperson had ended his term at end of January. The Public Service Commission (PSC) had three vacancies at the National Office and three in provinces that needed to be filled. She tendered the apologies of the Deputy Chairperson and the Director General, who had been called to another Parliamentary meeting.

She noted that the briefing would focus on the Departments of Education, Health, Justice, Correctional Services, and Rural Development and Land Reform, and South African Police Service (SAPS). The PSC had looked at the annual reports of these entities, and specifically at the performance information that PSC monitored on a regular basis, which included how those departments were equipped and dealing with financial management, what performance information was captured, how they were dealing with human resources (HR) issues, whether their senior managers signed their performance agreements, whether the evaluation on the Heads of Department (HOD) had been completed, how the departments were dealing with disciplinary matters, the numbers and cost of the suspensions, and whether there was compliance with financial disclosure requirements, ethics and anti-corruption.

Dr Dovhani Mamphiswana, Deputy Director General: Integrity and Anti-Corruption, Public Service Commission, indicated that the PSC was a Constitutional institution vested with custodial oversight over the public service. Although the annual reports and financial statement for the 2010/11 financial year had not been published, he would give an overview of performance, based on trends isolated over the past three years or so. He noted that the records for the 2010/11 financial year showed performance and spending up to the end of February 2011. The six departments on which he would present had been selected because of their special responsibilities in respect of the five priorities of government. He reminded the Committee that from the 2010/11 financial year, the former Department of Education had been split into two Departments and the final year’s figures reflected the Department of Basic Education (DBE).

The presentation for the DBE firstly related to its financial management, showing final appropriations and actual expenditure. The benchmark for spending in 2010/11 was 91.7%, and the remaining 8.3% could have been spent in March 2011. In respect of performance information, the Auditor-General (AG) had highlighted that, for some programmes, the DBE did not track progress against outputs, indicators and targets. Only 107 of the 225 service delivery outputs (48%) were achieved. The reasons given included the change in structure and splitting of the Department, financial constraints, lack of human resource (HR) capacity (which he would address later) and reliance on provinces to provide funding, which then did not materialise. PSC pointed out that if money was ringfenced, it should have been used for that initiative. In relation to HR, he pointed out that despite the claims of lack of capacity, it was important to note that funded positions were not filled. In 2009/10, there was a vacancy rate of 18.8%, and in 2010/11 a vacancy rate of 19.26%. There had been 100% compliance with signature of performance agreements in 2008/09, but only 97% in the 2009/10 year. The explanation was that three job descriptions were changed, but the PSC had then indicated to DBE that this was not a valid argument. However, no disciplinary action was taken against non-compliant SMS members.

Dr Mamphiswana then tabled a schedule on evaluation of the Head of Department (HOD), showing that from 2007/08, documents were submitted but no evaluation took place. A reasonable explanation was given for this, for the 2009/10 year. He also tabled a schedule of disciplinary hearings, showing a cost of R9 000 in 2008/09, and R63 000 in 2009/10. There were few grievances lodged. He noted that when grievances were lodged with the PSC, the PSC would notify the departments and ask that they be fully investigated and that report-backs be given.

He noted that it was very important for the PSC that all senior managers must comply with the financial disclosure framework, disclosing their financial interests every year, so that potential conflicts of interest could be managed. The compliance had increased from 83% to 90%. There were very few National Anti-Corruption Hotline cases reported in respect of DBE.

Dr Mamphiswana then moved to the schedules for the Department of Health (DOH). As at February 2011, the spending was at 89.1%, with one month remaining. DOH had received qualified audits up to the 2008/09, but an unqualified audit with findings in 2009/10. These findings were set out (see attached presentation, slide 12), and included DOH’s failure to fulfil the objectives on the Hospital Revitalisation Conditional Grant, failure to follow proper supply chain management processes, and failure to maintain full records for the Medical Control Council. Only 55 of the 178 measurable objectives (31%) were achieved. The reasons for this were given as high staff turnover and vacancies, limited resources, and severe shortage of pharmacists. However, Dr Mamphiswana indicated that once again, it was necessary to note the 25.1% vacancy rate, in respect of funded posts, in 2009/10, and 24% in 2010/11. He noted that 85% of performance agreements had been signed in 2009/10, but no information was available in 2008/09. He pointed out that the failure to submit the information meant that the DOH had not complied with the PSC requirements. The reasons provided were that senior managers did not understand the Performance Management and Development System (PMDS) , nor appreciate their roles and responsibilities. He then also pointed out that the former HOD was never evaluated up to 2008/09, and the Acting HOD was not evaluated in 2009/10. He explained that if an HOD began in his or her post mid-year, or acted in a position, then no evaluation would be done for that year.

The Chairperson interjected that this was part of the problem when people held acting posts.

Dr Mamphiswana outlined that information had not been made available to the PSC on disciplinary hearings. Most of the grievances related to salary problems. No financial disclosure forms had been submitted in 2008/09, but in 2009/10, 75% of the forms were submitted. He reminded the Committee that a number of supply chain management processes were not followed during the same period, and that this, coupled with the failure to disclose financial interests, raised concerns. However, despite the lack of disclosure, it was to be noted that for this period, no anti-corruption hotline cases for the DOH had been reported. In 2008/09, there was R100 991 worth of financial misconduct (which he explained was basically unauthorised expenditure), but the full amount had been recovered. For 2009/10, only 5% recovery, but of a lesser amount, had taken place.

Dr Mamphiswana moved on to the South African Police Service (SAPS) reports.  In February 2011, it had reached 91.1% spending. SAPS had received unqualified audit opinions for 2007 to 2010. However, in the 2009/10 year, despite giving an unqualified audit, the AG had made findings about fruitless and wasteful expenditure, relating to late payment of licence fees, and irregular expenditure arising through non-compliance with the supply chain management processes. He pointed out that this seemed slightly contradictory. In the 2009/10 financial year, the AG had reported that completeness of reported targets could not be verified, and supporting source information was not always provided. About 63% to 69% of outputs were achieved over the years. He set out the reasons given for non-achievement in 2009/10, including diminished expert capacity (see slide 21).

The vacancy rate for SAPS was low, at 0.2% in 2009 and 1.1% in 2010. No information was provided in 2009/10 for signing performance agreements, but there was 79% compliance in 2010/11. There was no evaluation for 2008/09 because the Commissioner was on extended leave. NO documents had yet been received for the later evaluations.

SAPS had the highest number of dismissals, and there were also a high number of grievances, most of which were dealt with internally. Most related to performance assessments, since officials not happy with these assessments would then lodge a grievance, seeking review. There was good compliance with the financial disclosure requirements. The number of national anti-corruption hotline cases reported for SAPS were higher than for other departments, but one worrying factor was that less were being closed, which indicated that these investigations did not appear to be given priority. The rate of recovery for financial misconduct was intermittent (see slide 26 for full details).

Dr Mamphiswana then dealt more briefly with the remaining departments. The Department of Justice and Constitutional Development (DOJ) had received qualified audit opinions for a number of years, and in 2009/10 there was insufficient evidence to support spending of R812 million, and fruitless and wasteful expenditure of R2 million was incurred. Twenty-two of the targets for Court Services were not specific and measurable. These points were pertinent to governance. He noted the vacancy rate, which was 10.73% in 2010/11. He pointed out that this did not comply with the requirements for job creation. The costs of suspensions were very high, up to as much as R3 billion in 2010. There had been consistent submission of HOD evaluations. He emphasised the amounts lost through financial misconduct (unauthorised expenditure), and also pointed out that recoveries were very low. However, the Department had reported the highest number of finalised financial misconduct cases.

The Department of Correctional Services (DCS) had received qualified audit opinions for several consecutive years, with emphasis always on fruitless expenditure and material losses. The AG continued to raise the same issues year after year. The vacancy rate for DCS was also quite high, at 12.6% in 2010/11. The PSC was also very concerned that no information was provided on the performance agreements signed. There was also failure to comply with the HOD evaluations, although this was affected by suspensions of top management and appointment of acting officials. He pointed out that R13 million was spent on disciplinary matters and suspensions. Most of the grievances related to salary problems.

The analysis for the Department of Rural Development and Land Reform (DRDLR) also showed clear lack of financial management and lack of financial control systems. The AG continued to raise the same matters over and over, which meant that the Department was failing to adhere to the basic requirements of the Public Finance Management Act (PFMA). For 2009/10, only four of the 21 outputs were achieved (19%), with 38.1% being partially achieved, and the reasons were given as budget deficits, delays in resolving people’s land rights, and lack of capacity. Once again, however, there were high vacancy rates. The DRDLR had also not ensured that there was documentation to support its performance and financial information. There had not been HOD evaluations since 2006/07, and no documents for this were submitted in the last two years. This indicated that the HOD, if he was not complying himself, was probably not ensuring that other requirements were met.

The Chairperson interjected to say, in defence of the Department, that it had also been reconstituted in 2009.

Dr Mamphiswana agreed, but noted that the same HOD was appointed to continue to deal with land reform.

Dr Mamphiswana noted that DRDLR had moved from not submitting any financial disclosure forms in 2009/10 to submitting 68% of the required forms in the following year.

Dr Mamphiswana concluded that the figures in the schedules just presented highlighted a number of points relating to the readiness of departments to take up their new budget, and said that in future this would be interrogated more fully, and that strategic interventions should be taken into account.

Ms Marais-Martin said that a comparison of the schedules would show the extent to which departments had achieved their targets. For instance, SAPS was doing quite well in this regard, but DOJ had not clearly identified its targets so that it was difficult to measure its achievements. DCS showed 68% variances that it had not explained or proved to the satisfaction of the AG, and DRDLR had reached only 19% of targets. It was necessary to look at whether targets were too ambitious, and whether external factors impinged on the departments’ ability. She stressed that it was necessary to consider not only whether the departments had managed to achieve unqualified audits, but also whether they could prove that the money allocated had been used both efficiently and effectively, whether they had complied with legislation and government goals, and how they were addressing any issues that diminished their capacity to reach targets. Many still had difficulty in setting clear targets and performance indicators.

Discussion
The Chairperson noted the Committee’s condolences to the Public Service Commission on the loss of one of the members, and asked for a short report on the status of the PSC, and its vacancies. He repeated the same request to the Financial and Fiscal Commission (FFC), noting that Mr Khumalo still was acting as Chairperson, and asking how this was to be resolved. Both institutions were important in supporting democracy and good governance and it was not desirable that they have vacancies.

Mr M Swart (DA) said the information provided by the PSC would be very useful, and contained some damning evidence against the departments.

Dr P Rabie (DA) agreed. He was particularly concerned about the number of suspensions and disciplinary cases, particularly in the DSC. The general discipline seemed to be lacking, and he recommended that this was an issue on which the Committee must specifically question the departments.

Mr G Snell (ANC) asked how the requirement that Annual Performance Plans (APP) must be submitted was to be put into effect.

Ms Marais-Martin noted that every department was required to drawn up a strategic plan over the Medium Term Expenditure Framework (MTEF), for five years, outlining what should be achieved, based on the electoral mandate given to the ruling party. The Annual Performance Plan (APP) then broke this down into what should be achieved each year, in a format prescribed by National Treasury (NT). The performance agreement was drawn by the HOD on the basis of both the APP and five-year strategic plan. The Performance Management Development System, managed by the Department of Public Service and Administration (DPSA) sought to ensure alignment of the documents, and proper performance.

The Chairperson said that several of the schedules indicated that the Accounting Officer, or HOD, had not complied with the requirements of the PFMA, and asked who would be responsible for ensuring compliance.

Ms R Mashigo (ANC) also noted that DRDLR had not submitted documents, and asked what the PSC would do in such cases.

Ms Mashigo noted that some departmental managers had claimed not to understand the PDMS, and asked whether the PSC had anything to do with ensuring efficiency of managers and understanding of systems.

The Chairperson referred to the number of cases where there was no information provided, and asked if this meant that the required forms or procedures had never been completed.

Ms Marais-Martin noted that the powers of the PSC were outlined in the Constitution. It could summons those who did not comply. In the past it had tended to ask people, several times, to comply, and was criticised for taking a soft approach. PSC had now decided to fast track the processes for non-compliance with performance agreements or other documents, through its monitoring and evaluation unit. Where the required information was not included in the annual reports, such as information about performance agreements signed by senior managers, the department would have failed to comply with NT prescribed format requirements. The oversight structures should then hold the departments responsible.

Ms Marais-Martin added that it was also necessary to look at what the performance agreements of the HOD said, in order to assess whether more should be done by that individual. For instance, if the performance agreement set out that he or she had to comply with all procedures, or move from a certain level of achievement to another by a set date, and failed to do so, then it was up to the Executive Authority to hold discussions with the HOD to discuss how and where improvements were needed. Before anyone could be disciplined for non-performance, the DPSA framework on non-performance had to be followed. This outlined the steps that had to be followed where there was under-performance. The Minister could request that a HOD be moved, but must comply with the specific process.

Mr Snell asked about the reported cases of financial misconduct, and questioned why these schedules did not, for instance, reflect the substantial sums reported by the media, relating to irregularities in the purchase of water purifiers by the DOH.

Ms Marais-Martin noted that the figures in the presentation related to the national Department of Health, and the water-purifier problem was one that related to provincial spending, and was being addressed in another forum.

The Chairperson also asked about the disciplinary issues, and whether the numbers of grievance cases resolved reflected only those referred to PSC. He also asked whether, where no money could be recovered in cases of financial misconduct, this was an indicator of corruption.

Ms Marais-Martin agreed that some departments had high costs for labour related cases. The length of time taken to finalise these, and therefore the number of days for which an official would be suspended at full pay, was another serious issue. It was also linked to whether money could be recovered in cases of financial misconduct, because no steps could be taken to recover until guilt was proven. This was a major challenge in many departments, and DPSA and PSC had discussed whether DPSA could not find a way to fast-track procedures. However, the labour laws were strict and protected the rights of employees. She noted that departments were not permitted to suspend without pay.

The Chairperson noted the comment about SAPS receiving a clean audit despite the AG also commenting on fruitless expenditure, and said that the correlation between service delivery and audit results had been questioned by this Committee in the past. Until now, the AG’s opinion was based only on availability of financial information, but in future there would be auditing of performance and service delivery.

Mr Snell understood that various provinces were allocated funds to administer certain services, and understood also that national departments should be administering policy, but then enquired where a holistic overview of performance at all levels could be obtained. He also asked again about the APPs, asking if these were regarded as purely internal documents prior to this year.

Ms Martin said that National Treasury had required that APPs be drawn for some time. At provincial level, they should be signed by both the HOD and Executive authority, then forwarded to NT, who would check whether they were in line with the strategic plan. The Division of Revenue Act set out the powers and functions of national departments, and provincial departments must account for any functions devolved to them, so the provincial departments were also required to have strategic plans, APPs and to submit financial statements. National departments must indicate, in their annual report, what money had been voted to provinces, and provincial departments must account to provincial legislatures by way of their own annual reports. The Presidential Coordinating Council, which included Ministers and Premiers, would receive the holistic reports.

Mr Justice Kgoedi, Regional Director, PSC, noted that strategic plans had always be tabled in Parliament but the APPs would define matters more clearly in the current financial year.

Financial and Fiscal Commission (FFC) submission
Mr Bongani Khumalo, Acting Chairperson, Financial and Fiscal Commission, gave a short report to the Committee on the status and vacancies of the Financial and Fiscal Commission (FFC or the Commission). He noted that the South African Local Government (SALGA) vacancy on the Commission had been unfilled since 2008. There was one provincial vacancy, because a commissioner had been appointed, had accepted, but then failed to take up the position, so she had been requested to resign formally in January 2011. The position of Chairperson had been vacant since September 2010. The first two positions would be filled by the Minister of Finance, and this process had been initiated in December 2010, when a letter was sent to the Minister of Finance and the President. However, in regard to the position of Chairperson, it was necessary to separate the position of Chairperson and Chief Executive Officer, to comply with good corporate governance, but it had been realised that this could only be done if the FFC Act was amended, and the Minister of Finance should be reporting shortly on this. He would send copies of the correspondence to the Committee. Mr Khumalo added that in February 2011, the terms of two Commissioners had ended, which had placed the Commission in a difficult position for a few weeks as it was left without a quorum, but the two commissioners were reappointed for a further term a few weeks later. At the moment, six out of the possible nine Commissioner vacancies were filled. He would send through a written report.

Mr Khumalo said it had been very useful that the PSC had given its presentation first, because some of the issues that emerged clearly from that presentation related to the FFC’s points about services assigned to different spheres of government. The Appropriation Bill dealt with the national sphere, but it was important not to lose sight of how those appropriations found their way to provincial and local government level, where they impacted most directly on the people.

The FFC had tried to find a useful definition of “constitutionally mandated services” (CMS), looking at how these had been treated in the various Appropriation Bills for each year. Failure to achieve progress in delivery of basic services could be ascribed either to mistakes in the allocations, or other matters that impacted on progress, and it was necessary to look at the government prioritisation process, and how this translated into achievements.

The FFC had worked on funding of CMSs between 2004 and 2007, particularly in relation to basic services across the spheres of government. Basic services could be seen as those that had a direct bearing on what was included in the Bill of Rights, including provision of shelter, basic education and social assistance, and the State could be sued by individuals for failing to provide these services. In most cases where the State had been sued, these services had been found wanting. This did not mean that nothing was being done by government, but rather that plans and tracking mechanisms were not sufficient to ensure that the rights were progressively realised. Mr Khumalo also emphasised that although the criminal justice system, for instance, may not be seen as equally important to the provision of water and electricity, it must be remembered that if social justice was not working, then individuals could not have their calls for water and electricity provision heard. One system impacted on another, and this must be realised when allocating resources, and deciding how to utilise the resources, once appropriated. Sections 214 (a) to (j) of the Constitution, read with the assignment of functions to different spheres, made it clear that there would be a link between the Appropriation and Division of Revenue Bills. The categorisation of basic services and the rest of services became academic, because it was necessary to allocated sufficient resources for everything.

Mr Khumalo said that an important aspect to be examined related to the conditional grants, which were administered by the national departments, but provincial departments bore the primary responsibility for utilising the grants. FFC urged that national departments needed to take more responsibility for the failure of provincial or local departments to spend the conditional grants. The failure to spend was usually ascribed to lack of capacity at provincial or local level, and the grants might be withheld for lack of capacity at that level, but he pointed out that greater accountability should also attach to national departments, who controlled those grants. He cited the example of National Treasury, who controlled the infrastructure and financial management grants for the municipalities.

Mr Khumalo said that concurrent functions created a significant problem. Across the board, there was public dissatisfaction with the quality of services. Most national departments had not defined what norms and standards were expected from the departments who bore concurrent responsibility, and were actually implementing the policy, and FFC was encouraging national departments now to assign responsibility and accountability properly. He cited the example that municipalities often bore the brunt of complaints in areas that did not fall within their responsibility. Housing was not a function of local government, but it was impossible for local government to provide its services, such as electricity and water, where no houses had been built. The point at which the problem arose must be found and directly addressed.

 Mr Vincent Makinta, Manager: Intergovernmental Fiscal Relations and Data, FFC, noted that the Appropriation Bill set out a three-year cycle. The numbers contained in the FFC presentation reflected the allocations over and above what was committed in the baseline. This funding was important as a new injection into the system, which would help to redirect funding to programmes of importance to the State.

Mr Makinta illustrated that about 70% of appropriated amounts had gone to constitutionally mandated services, and economic infrastructure, education, health, and the provincial equitable share (PES) had been prioritised for several years. Provinces were being funded by the PES, but could “top up” the allocations in some cases. The approach to emphasising and realising provision of infrastructure had laid the foundation for government’s new growth path of accelerating growth and job creation. Economic infrastructure development, education, health, social development, housing and the built environment all contributed largely to job creation.

Mr Makinta then noted the least prioritised services and one-off payments (see slide 9 of attached presentation). The Appropriation Bill added these amounts to the baseline, and they totalled R168 billion, which had primarily been added to the areas isolated earlier. The core programmes of CMS were important in assessing to what extent poverty was being addressed. The allocations to these had dropped from 64% in 2007/08 down to 25% in 2011/12, with one surge for Eskom payments in 2009/10. He pointed out that the larger allocations for compensation of employees, as a result of the implementation of Occupation Specific Dispensation (OSD) had shifted money away from the core functions, to administration, and this could be a challenge, as it removed some of the flexibility of spending on core services.

Additional funding for national functions was important also to facilitate attainment of constitutional rights. He highlighted, however, that some of the departments were facing challenges. For instance, the Department of Higher Education had received higher amounts to fund the newly established department, but it had to deal with high unemployment of graduates, scarce skills, and the need to increase completion of studies. Social protection was another matter where protection of the public had been effective in the past, and thus continued to be prioritised, but the FFC stressed that provision of social protection must be balanced with other programmes aimed at rehabilitating and integrating people back into social and economic life.

In the provincial sphere, the prioritisation of education, health and human capital investment continued, because investment in a child would turn him or her into a productive member of society. Once again, the main issue related to improvement in quality. Social infrastructure, in the form of housing and economic infrastructure, was a provincial function but the challenge was whether the provincial departments could spend more if it was allocated, and their current underspending needed to be addressed.

In relation to local government, the main CMSs would be water, sanitation, public transport  and refuse removal. Municipalities raised a lot of their own revenue, but where they were funding these services, this had to be sustainable, to avoid disrupting the eradication of backlogs. About R1 billion had been injected in 2009/10, through the Local Equitable Share (LES), but this must be maintained, to avoid moving money away from national priorities. He added that all these services were critical to creating jobs.

Mr Khumalo concluded that there were three key issues. Firstly, he summarised that South Africa was allocating efficiently, by making resources available to all three spheres for provision of constitutionally mandated services. However, the second point was that despite this, there were serious problems at a technical level, which meant that questions must be asked whether the resources allocated were being used as they were intended to be. The extent of fruitless and wasteful expenditure, and the vacancy rates, contributed to the non-achievement of targets. There was a definite need to improve the technical efficiency of utilisation across the three spheres of government. Thirdly, he noted that national departments should take more responsibility for the conditional grants, and, having motivated for them, they should ensure that capacity issues were addressed, rather than shifting the blame to the provinces and municipalities. This concern had been expressed recently at different forums.

Discussion
Mr Swart said that the FFC’s remarks on the responsibility of departments were very pertinent. The Conditional Grants for Infrastructure had been stopped in some instances, and this had directly impacted on the creation of jobs in those provinces.

Mr Swart noted that unfunded mandates were a problem. Libraries, or instance, were a function of provincial government, but municipalities were paying to keep them open. He asked what was being done to address this.

Mr Khumalo agreed that this was a very important matter. FFC had been working on this over the past year, and would be making submissions on it in the following month at Parliament. A number of these unfunded mandates resulted from departments’ failure to comply with Section 2 of the FFC Act. This clearly stated what must be done when a function was shifted from one organ of State to another, including seeking recommendations from the FFC, and the organ of State making the transfer being required to conduct an evaluation on the financial implications. In most cases, this had not happened. He gave the example of the shift of the scholar transport programme from the Department of Education to the Department of Transport, which was fraught with problems around funding, since some provinces allocated 35c per kilometre to this transport, whereas others gave R17 per kilometre. The danger of funding gaps would persist when insufficient attention was paid to addressing all issues.

Mr Swart asked if a copy of the report to Parliament on unfunded mandates would be made available to the Appropriations Committee.

Mr Khumalo said it was contained in the annual submission of the FFC on the Division of Revenue 2012, so it would be made available.

 Dr Rabie said that planning was a problem in local government, and sanitation and refuse removal were not provided in many rural areas, which was a source of immense frustration.

Mr Khumalo agreed that there were problems, and it was clear that any allocation of resources must also take into account how much was set aside for planning. The FFC had accompanied various committees on their oversight visits, and it was clear that insufficient financial resources, human capacity and attention were put to the planning processes and budgeting. The new Planning Commission might emphasise the importance of planning in the whole scheme of work, but at present that planning dimension was not present. He did not have an immediate answer on how this could be addressed, but it certainly needed to be discussed.

Ms Mashigo agreed that national departments, having motivated for funds, should take responsibility for failure of provinces. However, she was concerned about how this was being done. The PFMA gave National Treasury the option to withhold funding, but the Committee was concerned about this, saying that this essentially gave the departments the option to ask for support from National Treasury, rather than ensuring delivery themselves, which was thwarting the Committee’s efforts to ensure delivery on the ground.

Mr Khumalo responded that the conditional grants were designed within the existing legislation, so any conditional grant programme should be seen in the context of what the law required for management of finances. Each conditional grant had a framework, which was included as an annexure to the Division of Revenue Act, in which the national Department explained what the grant was, and how it should be used. The best way to deal with this was to strengthen the grant framework, and assign responsibility directly to the national departments. The FFC had previously raised this issue, but some grants continued to be given on a mere motivation. For instance, the Extended Public Works Incentive Grant was motivated, and accepted in principle without anything being produced to say exactly how it would be allocated. It was merely agreed that more information would be provided at a later stage. Although the FFC was required to look at these grants, there was a problem in practice because the FFC only became aware of them about two weeks before the Minister would table the budget, when it received the Division of Revenue Bill, by which stage there was little that FFC could do to address the gaps. FFC had asked that the process should be started earlier, although the Intergovernmental Framework Act only required tabling at this late stage. It was hoping that National Treasury would cooperate so that certain matters could be interrogated much earlier.

The Chairperson agreed that withholding funding was a vexed issue. This Committee did not agree that the national department should be allowed to attempt to abdicate responsibility, since although the Constitution did, in some sections, assign functions, it also noted that spheres should be assisting each other. He said that the Constitution set certain timeframes in place and he thought that provincial treasuries were not always complying with the requirements, and consulting before withholding grants.

Mr Khumalo indicated that this was set out in Section 216 of the Constitution, which made it clear that a transfer could not simply be halted, but that reasons must be given, and a process must be followed. The FFC was in support of using this section, provided that it was used as a last resort, if there had been consistent breaches and serious failures, and that all procedures had been followed.

The Chairperson said that the Committee would look forward to engaging further on the FFC recommendations, as it was important to monitor what was accepted, and the views of National Treasury.

The Chairperson summarised that there had been some commendable progress in appropriations, but it was important to ensure that implementation improved. He agreed that although in this year, job creation had been prioritised, it was also important to ensure that the focus lay not only on this, but resources behind the good intentions. He said that this Committee would also need to look at whether the National Development Agency was working properly to assist other social protection agencies.

The meeting was adjourned.





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