Department of Health: Financial and Fiscal Commission budget and spending

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Health

19 October 2011
Chairperson: Mr B Goqwana (ANC)
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Meeting Summary

The Financial and Fiscal Commission (FFC) provided the Portfolio Committee with a presentation on the spending patterns and the general fiscal position of the Department of Health. The FFC must submit its recommendations on fiscal matters ten months prior to the tabling of the Division of Revenue Bill (DORA) and the budgets in Parliament. The FFC did not have the power to question the Minister or probe why the Minister or Department had accepted or rejected the FFC recommendations, but Parliament could do so. A brief background to the economic situation was given, and the FFC stressed that it had recommended, in 2009, that no resources used to protect the poor and vulnerable should be disturbed.

The Department of Health (the Department) strategic objectives and actual delivery were compared. The Department spent 96.6% of the allotted budget in the past financial year. It had received a qualified audit report, due, amongst others, to the fact that the asset register was not well maintained, there was irregular expenditure, due to non-compliance with supply chain management procedures, and there was inadequate monitoring of conditional grant expenditure. Average provincial health expenditure was at 38.9%, as at 31 August 2011, below the National Treasury benchmark of 41.7%. The FFC had recommended, in relation to the Department, that government must finalise the implementation of the Occupation Specific Dispensation (OSD), and formalise the performance evaluation system. The Department should give priority to the maintenance of the asset register system. There should be a consolidation of infrastructure health grants, and a new delivery model, and the monitoring system for both conditional grant expenditure and performance information had to be developed.

Members commended the work of the FFC, and questioned if it would help to have grants to assist with transport to health facilities, commented that the problems of human resources could not be separated from other issues, wondered how OSD should be dealt with in future, and how provinces could be held more clearly accountable for spending. Members asked about the interaction with the provincial departments of health, and enquired about the relationship with national and provincial departments, as well as the relationship with the Department of Public Works. Members asked what could be done if recommendations were not followed, and asked for a list of recommendations that had been ignored in the past. The systems of procurement were questioned, and Members noted that these were problematic. Members wondered if a set of guidelines could not be developed to create uniformity and better financial management amongst the provinces, given the disparity in their spending, or whether a system should be introduced where provinces would deal with primary health care and national government would deal with larger institutions. Questions were asked as to how the National Health Insurance (NHI) could improve the quality of healthcare, and Members noted that the FFC would be putting up some alternatives for funding it in May 2012. Members also asked about training grants.

Meeting report

Department of Health: Financial and Fiscal Commission recommendations
Mr Bongani Khumalo, Chairperson, Financial and Fiscal Commission, noted that the last time the Financial and Fiscal Commission (FFC) had addressed the Portfolio Committee on Health was in 2003. He said that at times the relationship between the Department of Health (DoH) and the FFC was not healthy at one stage, but over the last two years a great effort had been made to improve it. He pointed out that the FFC made recommendations on the equitable division of nationally-raised revenue between the three spheres of government. The role of the FFC was set out in the Constitution. It was required to submit its recommendations ten months prior to the tabling of the Division of Revenue Bill and the budgets in Parliament. He clarified that the FFC did not have the power to question the Minister or probe why the Minister or Department had accepted or rejected the FFC recommendations, but Parliament could do so.

The current financial situation was delicate. In 2009, when the effects of the recession were being considered, the FFC recommended that resources used to protect the poor and vulnerable should not be disturbed. At that stage, it was projected that the economy would recover around 2015. He added that the present Eurozone crisis would put further strain on the economy, as Europe was still one of South Africa’s largest trading partners. He also highlighted that in 2008 there was a surplus, but currently the budget was in deficit, which meant that money was being borrowed to fund programmes, and this limited the range of programmes that could be funded. He concluded by saying that the FFC supported the social programmes of the government.

Mr Tebogo Makube, Programme Manager: Fiscal Policy, FFC, tabled a presentation in which the strategic objectives of the DoH were compared to actual delivery. He highlighted that over 11.4 million South Africans had been counselled for HIV, and that a tender to the value of R4.2 billion was awarded for the supply of ARVs over two years, which amounted to a saving of R4.4 billion from a previous tender. He noted that 96.6% of the allotted budget was spent by the DoH. He said that the DoH had received a qualified audit report for the financial period 2010/11. The reasons for this included the fact that the asset register was not well maintained, there was irregular expenditure, due to non-compliance with supply chain management procedures, and the fact that the transferring officer was not adequately monitoring conditional grant expenditure. He provided some statistics on the provincial health expenditure. The average provincial health expenditure was at 38.9%, as at 31 August 2011, and only the Eastern Cape had spent above the National Treasury expenditure benchmark of 41.7%. He then provided a comprehensive summary of the recommendations made by the FFC, the Government response and the progress to date (see attached presentation for details).

Mr Makube concluded that the Government should finalise the implementation of the Occupation Specific Dispensation (OSD) and formalise the performance evaluation system. The DOH should give priority to the maintenance of the asset register system, in line with the Public Finance Management Act (PFMA) and Government Immovable Asset Management Act (GIAMA). There should be a consolidation of infrastructure health grants, and a new delivery model needed to be developed. Finally there should be development of the monitoring system to monitor conditional grants expenditure and non-financial performance information, as required by Division of Revenue Act (DORA).

Discussion
The Chairperson applauded the FFC on its work and commended the comprehensive presentation. He stated that it was important to understand the dynamics of South Africa so issues could be addressed properly. FFC had clearly shown a solid understanding of the issues. He said that in provinces like the Northern Cape, access to primary health care was hampered by lack of adequate transport to health facilities. He wondered if there could perhaps be a grant to address this problem. He also commented that human resources could not be regarded separately as it was integral to addressing the issues in health.

Ms B Ngcobo (ANC) asked if the OSD could be made into a specific grant. She also wanted clarity on how provinces could be held accountable for spending.

Ms M Segale- Diswai (ANC) asked if departments were doing what they were meant to do. She enquired how often the FFC interacted with the national and provincial departments of health. She also queried what steps were taken if the departments did not follow the recommendations of the FFC. She enquired about the relationship that the FFC had with the Department of Public Works.

Ms E More (DA) also wanted to know what procedure was followed when recommendations were not implemented, and said that this spoke also to the reports by the Auditor-General, which showed that the failures led to a vicious cycle of non-performance. She asked what reasons were provided for the slow expenditure on health infrastructure, and asked for the FFC’s position on the systems of procurement.

Ms M Dube (ANC) said that national departments were often scrutinised for expenditure but provinces were autonomous. She enquired if a set of guidelines could not be developed to create uniformity and better financial management amongst the provinces. She requested that the FFC provide more information on the spending of conditional grants. She enquired if it would be desirable to institute a split system, where provinces would deal with primary health care and the national department would deal with larger institutions. She said that she had understood that some clinics were run by municipalities while other clinics were administered by the province, and this caused confusion.

Mr G Lekgetho (ANC) asked how the OSD could be taken over by the national government when it must be budgeted for at the provincial level. He drew attention to the point in the presentation that recommended performance evaluation, and said that this caused tension with the labour movements. He wanted to know if there was some easier and better way of conducting performance evaluation.

Mr M Waters (DA) said that he understood the nature of provincial independence but wanted to know if there was any minimum that a province was obliged to spend on health. He drew attention to the slide which showed provincial spending, and noted the disparity between the Western Cape and Mpumalanga. He also asked how the National Health Insurance (NHI) was going to improve the quality of healthcare, as he had understood the NHI would function purely as an insurance fund. He also asked if the FFC had prepared any documents on how best to fund the NHI.

Ms L Makhubele-Mashele (ANC) asked if the OSD could be used as a retention strategy.

Mr Khumalo gave a composite answer to the questions. He said that the relationship between the stakeholders and the FFC was identified as a key strategic pillar. A company had been hired to conduct a stakeholder perception survey, but the response level from Parliament to the survey was low. He said that the survey highlighted a few issues and that it was important for the FFC to intensify its relationships with important stakeholders. At present, the FFC was drafting protocols of engagement to try to meet frequently, and in a structured way, with stakeholders to build and maintain relationships.


With regard to transport, he noted that the Department of Education had a scholar transport programme, but agreed that sometimes these ‘soft issues’ were not well addressed. He mentioned that if pensions were not paid, people would seek relief from the courts. However, the position was not so easy or clear if there was a problem with nutrition or transport, and there was not a cut and dried remedy.

Mr Khumalo noted that the transfers were supposed to account for issues such as transport, but the topography of a place like the Northern Cape was not well accounted for in the current formula. He mentioned that it was the view of the FFC that the current formula was no longer consistent with the delivery model that government had adopted. The outcomes were clustered, cutting across different sections, but the current formula did not take this into account.

One of the FFC’s recommendations was that health care utilisation rates should be taken into consideration. At present, allocations were made based on the number of medical aid users. However, medical aid users would run out of funds and revert to the public health sector. In his view, it would be better to look at utilisation rates.

Mr Khumalo said that the health sector had the greatest number of conditional grants and that although the provinces were independent there was interdependence between the different spheres of government. Part of the problem with monitoring the intersection between conditional grants and the equitable share was that norms and standards had not been defined. He said that when minimum norms and standards were set, it would help provinces determine what services needed to be delivered. The DORA was currently only used as an instrument to allocate funds. However, that Act also contained penalties for individuals who violated the code of conduct. The FFC felt that the consequences for mismanagement of funds set out in DORA should be enforced.

Mr Khumalo noted that the OSD was meant to be an intervention by national government to deal with skills that were scarce, and that it was not meant to be institutionalised. He said that specific sectors were targeted. The point was that not all sectors should need to have OSD, because it was supposed to be a specific intervention to build up skills in the necessary sectors.

Mr Khumalo noted that there was interaction with the DoH in every second month. The relationship with the DoH had improved, and was currently quite good. The situation was a little more difficult in relation to the provincial departments but the FFC was trying to use the Speakers’ Forum to build the relationships with the relevant departments. The FFC had, in particular, encountered difficulty with the Western Cape legislature, and was yet to present its recommendations there, although there had been some informal interactions.

He said that the primary recipient of the FFC recommendations was in fact Parliament. Parliament then would have the power to call the Minister and Department to account. The FFC itself did not have the authority to ask the Minister or Department why a recommendation was accepted or rejected. He added that the new Money Bills Amendment Procedure and Related Matters Act created more space for Parliament to consult with the FFC, and said that where recommendations were made but no action followed, Parliament could seek explanations from the relevant departments.

Ms Luci Abrahams, Commissioner, FFC, added that currently there was nothing requiring a department to comply with the FFC recommendations. She said that the FFC was concerned with effectiveness and performance. Parliament was best placed to ask for greater detail, and the arm dealing with monitoring and evaluation in the Presidency was another key role player. She added that the government must be seen as a system, in which everyone must fulfil his or her role in order that the system ran smoothly.

Mr Khumalo said that the FFC’s interaction with Department of Public Works (DPW)was not very smooth. He said that the lease for the building from which the FFC worked had expired in June. Six months prior to the expiry of the lease, the necessary documents to deal with the matter were sent to DPW, but no action was taken. This was symptomatic of the relationship. He added that there were some issues of concern in Public Works and that it was important that these issues were addressed, because it dealt with many large infrastructure projects.

Mr Khumalo informed the Committee that transferring officers were responsible for the transfer and monitoring of conditional grants, and that it was part of their duty to make sure that money was spent correctly.

Mr Khumalo also said that the implementation of norms and standards was important, and that the NHI could improve quality, but there was a great deal of preparatory work that was needed before it would be implemented. He said that with the advent of the NHI, there would be a need to re-think conditional grants so that they were better aligned with government outcomes. He added that the FFC would table its recommendations on the NHI by May 2012.

Mr Khumalo said that the Minister had asked for a discussion on how the NHI was to be funded. The FFC had been considering different models but as yet no decision had been taken. The models were based on numbers, but these were estimates and were not official numbers. He added that the revenue period was uncertain and that this would be part of the issue the Minister would have to take into account.

Ms Abrahams said that provincial independence should not be considered an absolute. The introduction of the Intergovernmental Relations Framework Act had created mutual accountability between the different levels of government. She said that an argument for independence did not discount the requirement to be effective. She said that the national government had mechanism to hold the provincial government accountable, and these mechanisms should be used. She said that recommendations must be implemented timeously, otherwise systemic issues would not be addressed. She thought that twelve months should sufficient time to implement changes to avoid further damage. She said that setting of norms and standards was an effective way of promoting intergovernmental relations.

Ms Abrahams said that everything to do with procurement was currently treated as an administrative issue, and the current government systems made no distinction between procuring a pencil, or expensive hospital machinery. Part of the problem was the bureaucracy, and perhaps having large hospitals, run like factories, was not the best way to deal with some of the health issues facing the country. She added that OSD was reaching the end of its “shelf life” and that it was no longer useful.

Mr Makube said that that provinces often just accounted for inflation above baseline, without checking what the real demand was, and this resulted in a shortage of medicine and other requirements. The establishment of norms and standards would create a scientific method to evaluate the budgets, and the absence of that at the moment made matters very difficult, and National Treasury was merely using budget benchmarks.

Mr Makube confirmed that training grants were provided to both tertiary hospitals and Universities. 

Ms Ngcobo asked if money for training should come from just one pool.

Mr Khumalo answered that that was a political decision, and would be addressed in the Green Paper on Cooperative Governance.

Mr Waters wondered if, rather than having one pool for training, it might not be better for training hospitals to be run like Universities.

Mr Khumalo drew his attention to recommendations the FFC made in 2007.

Ms Segale- Diswai asked if a table of non-implemented recommendations could be supplied.

The Chairperson thanked the FFC for its impressive presentation, analysis and recommendations.

The meeting was adjourned.

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