National Treasury on all Departments' 3rd quarter 2012 expenditure

Meeting report

The Chairperson expressed disappointment that so few Committee members were present, as the meeting was of critical importance in providing an indication of what could be expected in the final quarter of the budget year. He mentioned that in the past, National Treasury (NT) had sent several representatives to deal with various aspects of the report, but this year it had adopted a different approach. There needed to be an improvement in communication between the Committee and the NT, in order to eliminate the delays in dealing with the report.

He said the report indicated some departments were doing very well, and were performing at the benchmark 75% level or above. Others, however, were down toward the 50% level, but despite this, they had indicated in their reports that they still expected to reach the 100% mark by the end of the financial year. He expressed scepticism over these expectations, as he did not know from where this “magic” was going to come.

Some departments had serious challenges, as a result of which the Committee had been monitoring what it termed “habitual transgressors.” The strategy had been not to invite them to face the Committee every quarter, but rather to give them a chance to implement changes and recover from the state in which they had found themselves. However, the Committee was becoming frustrated by the fact that despite providing support and guidance, there was often no improvement to be seen.

At the other end of the scale, some departments were already close to the 100% expenditure level, and the Committee would appreciate advice from NT on how to ensure they stayed within budget for the full financial year.

Mr Andrew Donaldson, Deputy Director-General: Public Finance, National Treasury, said he agreed that the report indicated some concerning trends and had highlighted where the problem areas were, and where the Committee might want to focus its attention.

He said he would not be going through each individual department in detail, but the overall picture showed that while the spending on compensation was very close to the 75% benchmark, spending on goods and services was very much lower – just over 60% -- while expenditure or capital goods by national departments was below 50%. Although there was normally a pick-up in activity in the third quarter, reflected in the fourth quarter, expenditure on capital goods was expected to be below budget overall for the full year. He pointed out, however, the direct payment for capital assets by government departments were only a fraction of total government spending, the larger allocations being the budgets of the agencies – such as the road and rail agencies – and the overall trend would not be clear until their reports came through.

Spending on state debt costs had been lower than expected, mainly due to interest rates remaining low, while transfers to Sector Education and Training Authorities (SETAs) were broadly in line with expectations.

The NT was aware that there would be over-spending in some departments, and was particularly concerned with the Department of Women, Children and People with Disabilities, where financial management had not yet “settled down.” There were also a number of departments where one could see there would be over-expenditure on the compensation of employees, such as Police, Defence and Agriculture, and it would be necessary to transfer funds from other areas to deal with this situation.

Mr Donaldson said the main presentation ran to around 80 slides, and suggested that rather than go through each one in detail, it might be more useful to open up for discussion, and he would attempt to deal with specific issues.

Discussion
The Chairperson said he would have liked the presenter to have commented on certain departments, such as the Department of Women, Children and People with Disabilities, which was moving from one extreme to the other – under-spending and then over-spending – and the Committee hoped that NT was “holding the hand” of this new department. Most of its expenses appeared to be for travelling, and the Committee was not sure that the core function of the department was to travel to various forums around the country.

Mr N Singh (IFP) said the Committee needed a “dashboard” of just one or two slides, showing the expenditure levels of each department, so that members could immediately see the “red flags.” It would also be helpful to detail specific areas, such as vacant posts, capital expenditure, unpaid invoices, performance versus key indicators, and so on, so that one could identify who the “culprits” were. He also asked for more information on conditional grants, and referred to the agencies responsible for the bulk of capital expenditure, and the need to know how much they had spent up to the end of the third quarter. The Committee needed to know, from the last adjusted appropriation up till now, what the spending of those departments which had received additional money had been like, and whether their additional funding had been justified.

Mr M Swart (DA) commented that there were “red flags” in virtually every department. He drew specific attention to the Department of Women, Children and People with Disabilities, where expenditure on salaries and wages were way above budgeted levels because people had been appointed above their notches or to positions which had not been budgeted for. He wanted to know what the NT could do in cases like this.

The Chairperson said this department had reported to the Committee that their organogram had been approved. Now it was being told that the appointments had, in fact, been made outside the organogram.

Ms R Mashigo (ANC) asked whether the systems of the Department of International Relations and Cooperation needed to be reviewed to overcome the problem of delays in settling overseas payments. She added that the Committee required the support of the NT to improve the financial performance of the departments.

Mr G Snell (ANC) suggested that the figure of around 74% expenditure for compensation against the 75% benchmark, could be misleading. If one took out the amount for budgeted vacant posts, one might find there had been over-expenditure.

Referring to under-expenditure on capital assets, Mr Snell asked why departments were not able to make use of the Medium Term Framework (MTF) allocation to start preparing tenders prior to the commencement of the financial year.

The Chairperson pointed out that 80% to 90% of the Department of Human Settlement’s expenditure was in transfers to the provinces or municipalities, but the reports of the department did not indicate which of these entities were performing well, and which were performing badly. He suggested that this information should be included in the third quarter National Council of Provinces (NCOP) reports.

He said the NT seemed to be reluctant to the seen as a “big brother” department in dealing with departments facing challenges. The construction unit of the Department of Water Affairs, for instance, did not seem to follow NT rules, but it was not clear if the NT had access to reports identifying these problems. It might be helpful to review the progress of each department at specific points of the MTF to analyse which departments were improving, and which were not.

Mr Donaldson responded that the NT was far from cautious in its dealings with departments. The NT had access to Portfolio Committee reports, and was kept abreast of all financial developments so that it could follow up issues with departments. This was done in various ways to match the circumstances, but in general this was handled through the directorates dealing with various departments, who were in regular contact with the Chief Financial Officers (CFOs), Directors-General (from time to time), or responsible programme managers. There was no specific way in which the NT engaged on each issue, as these differed from department to department.

He said it was important for the NT – and the Committee – to focus on the really big issues. While the Department for Women, Children and People with Disabilities faced challenges, it was in fact a small department (with a budget of R150 million) and, as a monitoring and oversight agency, it had no direct service delivery responsibilities. By contrast, the Department of International Relations and Cooperation (DIRCO) had a budget of R5 billion, while Police and Justice were other departments where the issues were much bigger.

In the case of DIRCO, its expenditure level was shown as 53%, but NT knew that this figure did not reflect the true position, as there were lags in the information flow – a situation which was due to outdated information systems, and which needed to be fixed. The NT was working with the Reserve Bank on a new procedure for dealing with foreign currency payments which, it was hoped, would lead to more streamlined information, contribute to better budgeting and reduce delays in making foreign payments

Another high priority area lay within the Department of Public Works (DPW), where the major issues were leasing costs and contracts, general financial management and an improvement in the operation of the Property Management Trading Entity. Better co-operation was needed between the DPW and other departments, as well as municipalities, particularly the larger metropoles such as Tshwane and Cape Town.

Mr Donaldson agreed with Mr Singh’s proposal for a departmental performance “dashboard”, but warned against trying to squeeze too much information into such a presentation. A balance had to be struck so that the information could be summarised in an accessible way.

Regarding transfers and conditional grants, he said the explanation of what happened with the spending of these funds by provinces and municipalities was covered in the report of the inter-governmental relations team. The reporting system had now stabilised, and while it might be useful for the report to accompany the NT’s report to the Committee, it was in any event presented to the NCOP and the responsible committees. It was also a good suggestion to identify the ten to 15 major entities which were recipients of large transfers, so that a quarterly report on their spending could be received.

Referring to suggestions that the number of vacant posts in government departments might have affected the remuneration expenditure performance level, Mr Donaldson pointed out that most vacant posts in national government and provincial departments were not funded, and therefore there had not been under-expenditure on the remuneration of employees, relative to budget allocations.

He rejected claims by some departments that they were unable to commit to multi-year capital projects until the appropriation was passed for a financial year, and that was why the money was not spent until the fourth quarter – or not at all, in some instances. In general, the three-year framework did allow departments to commit for multi-year investments without any complications.

Mr J Gelderblom (ANC) expressed concern at the below-target expenditure on capital projects at municipal level, and its effect on the key areas of service delivery and job creation.

Mr Donaldson agreed that capital expenditure was lagging far behind budgeted levels. The role of NT over the years had been to try to improve the comprehensiveness of the coverage of municipal budget and expenditure reviews, so that it could enhance its monitoring of projects, such as the provision of roads, water and electricity, which were important in terms of service delivery and job creation.

Mr Singh told the Committee that during a recent private trip to Malaysia, he had visited a “government village” which housed every aspect of government activity. With a modern and varied architectural style, it had become a tourist attraction. He asked whether it would be possible to obtain a “ballpark” figure for how much it was costing the government to lease buildings used by government departments, so that this could be compared with the cost of creating a “one-stop” government village in South Africa.

Mr Donaldson said the “ballpark” figure for leases managed by the PMTE on behalf of national departments was around R3 billion a year. The figure for provincial leases was lower, but was growing rapidly. Expenditure on leases was the fastest growing part of the government’s property spending, and the NT would prefer to see this trend reversed, and more spent on building infrastructure and maintenance for government accommodation.

Mr Swart commented that if a Malaysian-style “government village” were to become a reality in South Africa, the DPW would need to become much more efficient. He noted that by the end of the third quarter, it had underspent its capital budget by 23,3%. This was where jobs were created, and therefore important to achieve performance levels.

The Chairperson suggested that the NT should be represented at future meetings of the Committee at which departments reported individually on their performance, as the NT was often blamed for actions affecting their performance.

Mr Donaldson said he would ensure that the NT was represented at future meetings.

The meeting was closed.