Third Quarter Expenditure Reports 2011/12: Research Unit analysis

Standing Committee on Appropriations

18 April 2012
Chairperson: Mr E Sogoni (ANC)
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Meeting Summary

Two Parliamentary Researchers presented an analysis of the Report on Third Quarter Expenditure for 2011/12.  The analysis covered the adjusted budget of R505,1 billion and compared the budgeted allocation to actual expenditure. Over the past three years, the budget reflected a 22% increase in allocation and this contrasted with a marginal percentage decrease in actual expenditure. This implied that Departments had not been able to keep up with the budget increases, and stricter measures were needed to monitor their expenditure.

The third quarter expenditure was broken down into economic classifications for current payments, transfers and subsidies and payments for capital assets. There was a declining trend in current payments for goods and services, and many departments had cited non-receipt of invoices, non-payment of invoices on time, and unfilled vacancies as reasons for this. The largest decline was, however, seen in expenditure on capital assets, at below 40% of the budget. Transfers, which comprised 67% of the budget, showed a marginal decline. However, it was later noted that if the figures for transfers were removed from the calculations, most departments had not spent to scratch. The three worst-performing Departments were the Department of Communication, the Department of Water Affairs and the Department of Performance Monitoring and Evaluation which had spent only 46.13%, 46.86% and 51.81% respectively. The expenditure in Departments of Water Affairs and of Rural Development and Land Reform was decreasing year on year. Recurring problems around transfers and subsidies, budgets for goods and services and capital asset expenditure were ascribed to non-filling of vacancies, and weak supply chain management led to irregular and unauthorised expenditure. The Department of Women, Children and People with Disabilities had overspent, by employing staff at incorrect salary grades, outside the post establishment, and by over-expenditure on advertising. Expenditure trends in the Departments of Communications, National Treasury and Human Settlements had all decreased, and National Treasury failed to set a good example. In the Department of Human Settlements, 75% of the allocation related to transfers yet there was no monitoring of the transfers at provincial or municipal level. Similar problems were apparent in the Department of Communications, where transfers that comprised the majority of the budget were not spent. Lack of capacity was apparent in
Department of Cooperative Government and Traditional Affairs and National Treasury. Although spending in theDepartment of Basic Education was fine, in respect of transfers, it had failed to spend properly on school workbooks and the schools recapitalisation grant. It was apparently said that the problems in rebuilding the mud schools had been underestimated.

Particular areas of concern, as highlighted also in the reports of the Auditor-General, were poor leadership in departments, and poor financial management, performance management and governance. Most of the issues raised had recurred year after year. New problems around fruitless, unauthorised and irregular expenditure were symptomatic of dysfunctional internal audits.

Members agreed with the comments of the Researchers and the concerns around leadership and financial management. They suggested that these issues must be raised with the House. The Department of Human Settlements, in particular, should be asked why its expenditure was so low. Members were concerned that the figures presented often masked the real situation, since so much of the budget related to transfers. Members wondered why National Treasury was unable to discern the lack of appropriate audit committees, and would recommend that departments should be awarded only what they had proved they were able to spend.

Meeting report

Third Quarter Expenditure Reports 2011/12: Research Unit analysis
Mr Phelalani Dlomo, Parliamentary Researcher, presented the Research Unit’s analysis on the Third Quarter Expenditure Report for 2011/12. The analysis covered the adjusted budget of R505,1 billion, and compared the budgeted allocation to actual expenditure. Overall, over the past three years, the budget reflected a 22% increase in allocation and this contrasted with a marginal decrease in actual expenditure. This implied that Departments had not been able to keep up with the budget increases, and this in turn warranted closer scrutiny of government expenditure, through stricter measures to implement and monitor budgets. The non-implementation of budgets would negatively affect service delivery, infrastructure development and job creation. In addition, should there be a rush in expenditure to close the gap in the last quarter, it would bring into question whether government had received value for money.

The third quarter expenditure was further broken down into economic classifications, namely current payments, transfers and subsidies and payments for capital assets. There was a declining trend in current payments for goods and services, which departments had said was due to the fact that they had not received invoices, or payments not being made on time and because of vacant positions in the departments remaining unfilled. Expenditure on capital assets reflected the biggest decline, with expenditure at below 40% of the budget. There was a marginal decline in transfers, which comprised 67% of the budget.

The analysis then focussed on the worst cases of actual expenditure, noting that the three worst-performing departments were the Department of Communication, the Department of Water Affairs and the Department of Performance Monitoring and Evaluation which had spent only 46.13%, 46.86% and 51.81% respectively.

In tracking overall expenditure over the past three years, it become apparent that the expenditure of the Department of Water Affairs and the Department of Rural Development and Land Reform, as a percentage, was decreasing, which implied that matters were worsening rather than improving. The Department of Health was the only department that reflected an increase in expenditure. Even the Department of Health needed to note, however, that when transfers were not taken into account, it was actually also under spending on its other budget components.

The Research Unit noted recurring problems of transfers and subsidies, budgets for goods and services and delays in the roll out of capital asset expenditure. These were attributed to the non-filling of vacant department posts.

Irregular and unauthorised expenditure was another general area of weakness, which emanated from weak supply chain management and led to corruption and fraud.

The Department of Women, Children and People with Disabilities had overspent its budget, but this happened through employing staff at a salary grade level higher than they were supposed to receive, by employing staff outside of the post establishment, and by spending on advertising at a higher level than had been budgeted for. Its expenditure was running at 561%.

The Researchers felt that the oversight role of the Appropriations Committee was far bigger and stronger in other countries, and suggested that the component of this 11-member Committee should be increased, to do justice to overseeing a R1 trillion budget.

They highlighted the major areas of concern in departments around the leadership of the departments, financial management, performance management and governance.

The Chairperson agreed that the Auditor-General’s comments, as set out in the audit reports, were very important.

Mr Musa Zamisa, Parliamentary Researcher continued with the presentation. He said the expenditure trends in the Departments of Communications, National Treasury and Human Settlements had all decreased. National Treasury was not leading by example. The Department of Human Settlements had service delivery issues. While 75% of the Department of Human Settlements’ budget related to transfers, there was no monitoring of the money when it reached provincial or municipal level, because of a lack of human resource capacity, owing to the fact that vacant posts had not been filled. Almost the entire budget of the Department of Communications was made up of transfers but this had not been spent because of issues around Digital Terrestrial Television (DTT). The DTT standards had apparently been changed once more.

There appeared to be a lack of capacity in the
Department of Cooperative Government and Traditional Affairs (COGTA) and National Treasury. The Department of Basic Education (DBE) spent well on transfers but there was slow spending on Programme 3 and even slower spending on Programme 2, which dealt in turn, with school workbooks and the schools recapitalisation grant. The researchers noted that the DBE’s Director General had said that the information provided by provinces had not been accurate, and that the real situation in regard to the mud schools requiring rebuilding had been underestimated.

Discussion
Mr M Swart (DA) said the Department of Human Settlements should be contacted to ask why its expenditure was so low.

Ms R Mashigo (ANC) said that the issues raised in the presentation had to be brought to the attention of the House.

The Chairperson said that the House programme would be considered, and a proposal would be made to do as Ms Mashigo suggested.

The Chairperson agreed that the overall figures of the departments looked good on paper, but the true position was masked behind the “veil of transfers” that so often comprised the larger part of the departments’ budgets.

He added that the Research Unit had correctly noted that most of the issues recurred year after year, while new issues of fruitless, unauthorised and irregular expenditure were symptomatic of dysfunctional internal audits. This was of critical importance to this Committee, because all the under- or  incorrect expenditure, added together, would comprise a huge figure.

The Chairperson also said that supply chain management was the main area where corruption occurred and this needed to be tightened up.

Mr J Gelderblom (ANC) asked why National Treasury could not detect that departments did not have appropriate audit committees.

Mr Swart said that departments had to be given only what they were capable of spending.

Other Committee business
The Chairperson said that the Committee had to finalise who was going on the study tour to India.

Another issue related to the Committee having to do oversight over the Department of Planning, Monitoring and Evaluation (DPME), although the correctness of the Committee doing oversight on the DPME was at issue.

Mr M Swart (DA) said it had to be brought to the attention of the Rules Committee that this Committee was battling to oversee all Departments, let alone do oversight on the DPME.

Members agreed that the Committee should meet on Thursday 26 April with the DPME and National Youth Development Agency to review their Strategic Plans and Budgets.


The meeting was adjourned.

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