Fourth Quarter Expenditure Analysis 2011/12

Standing Committee on Appropriations

13 August 2012
Chairperson: Mr E Songoni (ANC)
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Meeting Summary

The Committee researchers briefed Members on the Fourth Quarter Expenditure Analysis Report for 2011/12. The overall allocated amount for the period 2011-12 was R 510.9 billion, of which R 499.5 billion, or 97,77%, had been spent . The major contributors to the under-expenditure included National Treasury, and the Departments of  Cooperative Governance and Traditional Affairs,  Basic Education, Social Development,  Water Affairs, Public Works and Police.

The aim of the analysis was to highlight and flag the spending of national departments in order to draw the attention of Parliament and the Executive to the key issues.  In general, the problems faced by the departments included high under-expenditure, prevalence of unfilled vacancies -- which contravened the President’s announcement that all departments should have filled their funded vacancies before the end of the first quarter of 2011/12 -- and the persistent rolling over of funds. One of the key issues highlighted by the researchers was that the expenditure of the capital expenditure budget was mainly dependent on the filling of funded vacancies. Therefore, the issue of vacant posts, which was a recurring one, needed to be addressed.  Furthermore, the delays in the procurement processes and non-compliance with minimum requirements for conditional grants such as the Expanded Public Works Programme Incentive Grant and other transfer payments remained a challenge, given that section 13 of the Treasury Regulations provided that all government departments should pay their credits and any money owed within 30 days of the month.

The Department of Women and Children and People living with Disabilities (DWCPD) was still faced with the increasing expenditure in the compensation of employees and goods and services due to travelling and subsistence allowances, yet it was still unable to finalize its planned targets for 2011/12.

The Department of Social Development had been unable to make the complete transfer payments for the Disability, Foster Care and Child Support Grants, and Social Relief Assistance. The researchers highlighted that under-spending by DSD could be attributed to recent measures by the Department’s anti-corruption campaign to trace individuals who were fraudulently accessing the social services grants. In this light, the under spending could be viewed as a positive aspect, but some of the Members noted that it was still of paramount importance that measures be put in place to ensure that the remaining funds were distributed to deserving beneficiaries. The appointment of contractors by DSD as opposed to permanent staff, while yielding some savings, had potential negative implications for job creation, as there was no skills transfer. Members noted the need for the researchers to follow up on whether the funds had been recovered and investigate the reasons for delays in funds to the Non-Governmental Organization, LoveLife.

The Department of Police had reported an under expenditure for the first time this financial year, although over-expenditure had been recorded in programmes such as the Safety and Security Sector Education and Training Authority (110.5%), claims against the state and the Department for possible compensation (172.4%), the Integrated Justice System Programme (4343.3%), modernisation of the Integrated Justice System (316.1%) and post-retirement benefits (193.8%). It was noted that this was indicative of a lack of proper planning and accurate projections. Although the Department had spent up to 99 per cent of its budget, most of the expenditure was not in line with the initial projections. Delays in the awarding of contracts for the building of police stations were cited as major contributing factors for under-spending. Members agreed to invite the Department of Police and Department of Justice and Constitutional Development in order for them to explain these irregularities and provide addition information on the distribution of funds within the cluster.

The National Treasury had regressed heavily over the past five years, dipping to a low 89.6 percent (R21.4 billion against an available budget of R23.8 billion), which was an under-spending of R2.5 billion. In the Technical Support and Development Finance (Programme 8) only 61.7% had been spent.  The question that Members had to uncover in their interactions with NT was whether the Development Bank of South Africa (DBSA) had the requisite capacity to administer the implementation of the Jobs Fund, taking into account the slow delivery of the Accelerated Schools Infrastructure Development Initiative project implemented by it.  The NT had 122 vacant positions (for specialised skills) mainly due to the Department’s inability to attract suitable skills. This basically signalled capacity challenges in the NT, which was a cause for concern given its role as the custodian of public finances. In addition, the Committee might want to know the extent to which these capacity challenges impacted on its mandate, especially that which related to providing technical support to struggling municipalities.  Members discussed the need to follow up on the progress made by the NT in establishing a task force to assist the Department of Women and Children and People Living with Disabilities deal with compliance matters, reasons for the unspent funds on the Neighborhood Development Partnership Grant, and information regarding under spending in Programme 8 (Technical Support and Development Finance).

With regard to the Department of Basic Education, Members queried the impact of the Dinaledi Schools Grant and expressed a desire for the programme to be extended to other schools. They mentioned that the DBE had to provide reasons for why the grant should be provided for this financial year.

Members were advised to scrutinise the Department’s Strategic and Annual Performance plans (APP) in order to ascertain whether the Department had enough capacity to achieve its targets and whether these targets were realistic.

Additional pointers provided for Members included questions regarding the Department of Human Settlements’ Turn-Around Strategy. The researchers explained that this was the major reason for the unfilled vacancies and ultimately, the under-spending in the Department.  Members needed to inquire about the reasons, nature and duration of this turn-around strategy. In addition, poor performance on the Rural Household Infrastructure Grant was a recurring issue and a cause for concern, given the urgent need to reduce the backlog and thereby improving service delivery in rural communities.

Members asked whether the under-spending trend in most departments was persistent, or if it had varied over the years. They voiced concern at the repeated non-performance by most departments and discussed means of ensuring greater accountability.  Members inquired if the Committee had the mandate to call the Ministers to account for some of the departments’ non-performance. They concurred that the recurring non-performance of most departments was largely due to the fact that their actions bore no consequences. Therefore, they agreed to schedule a joint meeting with the Portfolio Committee to deliberate over the issues raised by the report and also to compile a list of questions raised by the Members which could be sent in writing to the departments inquiring about the corrective measures put in place to address them.  Members agreed to invite all nine departments outlined in the presentation. They noted that a reminder had to be sent to the Department of Communication, which owed the Committee a report.

Meeting report

Presentation of the Fourth Quarter Expenditure Analysis 2011/12
Mr Phelelani Dlomo stated that the purpose of the analysis was to provide a detailed overview of fourth quarter Government spending in the past three years. The aim of the analysis was to highlight and flag out spending of National Departments in order to draw the attention of Parliament and the Executive to the key issues. The overall allocation of the budget for 2011/12 amounted to R510.9 billion, of which R499.5 billion had been spent. The overall under-expenditure trends from 2009 to 2011 revealed an increasing under-expenditure, from R6.3 billion in 2009/10, to R9.5 billion in 2010/11 and to R11.4 billion in 2011/12. Therefore, while there had been an increase in the budget allocations, there had been a decrease in the fourth quarter expenditure trends for the past three financial years.

The major contributors to the under-expenditure included National Treasury, Department of  Cooperative Governance and Traditional Affairs,  Department of Basic Education, Department of Social Development, Department of Water Affairs, Department of  Public Works and Department of Police.

The Department of Water Affairs had been allocated a total R9.0 billion for 2011/12, of which it had spent R8.2 billion, reporting an under-expenditure of R 784 million (8.7%). The reason for the under-expenditure was that compensation of employees had been allocated R1.1 billion and R922.8 million was spent. The R133.7 million under-spending was due to the non-filling of vacant posts.

The Department of Public Works had been allocated R7.8 billion and had spent 90.1%.  Some of the reasons for this under-expenditure included delays in transfers. Transfers and subsidies were allocated R4.0 billion and R3.6 billion (91.1%) had been spent.  This was due to the lack of spending on the Energy Efficient Project in Government buildings, the Expanded Public Works Incentive Grant for local Government, the Expanded Public Works Incentive Grant for Provincial Government, and slow spending on Commonwealth war graves.

The Department of Women and Children and People with Disabilities had been allocated R143.1 million and had overspent by 115.8 %. This over-expenditure was attributed to the appointment of staff outside the available budget, adjustment of salaries above the Department of Public Service and Administration (DPSA) requirement, and the establishment a non-budgeted Research Unit.  Goods and Services had been allocated R46 million and spent R55.4 million (120.4%). A large portion of the over-spending was due to travelling and subsistence allowance costs. The Department had under-performed by failing to complete the gender mainstreaming strategy, implementation of Monitoring and Evaluation systems, training programmes on skills development for women in construction cooperatives, waste management and farming, and the gender barometer for the Job Creation Fund. Furthermore, the report on capacity building had not been submitted to Cabinet.

The Department of Social Development had been allocated R104.2 billion and had spent 98.9%.  Under-expenditure was identified in the following economic classifications: Compensation of employees had been allocated R276.6 million and 98.8% was spent. The under-spending was largely due to non-filling of vacant positions and the appointment of contractors as opposed to permanent staff.  A total of R257.7 million had been allocated to Goods and Services and only 96.9% had been spent. The under-spending was largely due to the late submission of invoices from service providers and SITA. Transfers and Subsidies were allocated R103.7 billion and the Department had spent 98.9%. The under-spending was due to delays in payments for disability grants, foster care grants, child support grants, social relief assistance, and a non-governmental organisation (LoveLife) due to non-compliance with minimum standards.

The Department of Police had been allocated R58.5 billion and had spent 98.9% of the budget.  The under-expenditure was identified in Goods and Services, which had been allocated R 12.7 billion but only 93.8% had been spent. This under-spending was mainly due to slow implementation of modernization projects, delays in the completion of new police stations, the procurement process for machinery and equipment, and slow spending on criminal justice sector revamp projects. Overspending was reported in programmes such the Safety and Security Sector Education Training Authority (110.5%);  state or civil claims instituted against the Department for possible compensation; the integrated justice system programme (4 343.3%); modernization of the integrated justice system (316.1%) and post-retirement benefits (193.8%). It was noted that such over-spending was indicative of a lack of proper planning and accurate projections.

Issues for consideration by Members included that while the President had made an undertaking at the beginning 2011 that all Departments should fill their funded vacancies before the end of the first quarter of 2011/12, the report revealed that this was not yet a reality. Furthermore, this issue continued to be a major contributor to under-expenditure by most Departments.  Mr Dlomo highlighted the fact that expenditure of the capital expenditure budget was mainly dependent on the filling of funded vacancies. Therefore, the issue of vacant posts, which was a recurring one, needed to be addressed. Furthermore, the delays in the procurement processes and non-compliance with minimum requirements for conditional grants, such as the EPWP Incentive Grant and other transfer payments, remained a challenge given that Section 13 of the Treasury Regulations provided that all Government Departments should pay their credits and any money owed within 30 days of the month. The main reason for under-expenditure was the non-payment of invoices which had not been submitted either by service providers or Department of Public Works and SITA.

The Department of Women and Children and People living with Disabilities was still faced with an increasing expenditure in the compensation of employees and goods and services due to travelling and subsistence allowances, yet the Department was unable to finalise its planned targets for 2011/12.

The Department of Social Development had been unable to make the complete transfer payments for disability, foster care, and child support grants and social relief assistance.

The Department of Police had reported under-expenditure for the first time this year and certain expenditures were not in line with projected budgets. The delays in the awarding of contracts for building police stations had been noted as a contributing factor for under-spending. In addition, it was recommended that Parliament should ensure that it spent reasonable time to scrutinize the strategic plans and Annual Performance Plans (APP) of various departments in order to ascertain whether the Departments had enough capacity to achieve their targets and whether these targets were realistic.

The Department of Communication (DoC) had shown not only under-spending, but also regression. In 2011/12 a total of R210.9 million was left unspent.  Despite the 100% transfer of funds, spending remained low in other economic classifications, such as R21.9 million (against R173.5 million) unspent on the compensation of employees; R187.8 million (against R413.3 million) unspent on goods and services; R 1.7 million (against R4.6 million) unspent on payment on capital assets.  Mr Zamisa pointed out that at the end of the third quarter, only 48.4% had been transferred yet by the end of the fourth quarter all the funds had been transferred.  He added that this was clear sign of fiscal dumping through late transfers, since receiving entities would never have managed to spend such late transfers.  The major reasons for delays in spending included a moratorium on the appointment of staff in Programme 1, hence there had been under-spending on compensation of employees and goods and services. Mr Zamisa suggested the Committee should ask the DoC about the rationale, and duration of the reported moratorium on the appointment of staff and delays in the implementation of the 112 Call Centre Project.

The National Treasury had regressed heavily over the past five years, dipping to a low 89.6% (R21.4 billion against an available budget of R23.8 billion), resulting in an under-spending of R2.5 billion in 2011/12. This under-spending  had been experienced in all economic classifications except for payments for financial assets, such as R63.7 million unspent on compensation of employees; R165 million (against R899.1 million) unspent on goods and services; R11.6 million (against R20.6 million) unspent on payment for capital assets and R2.2 million (against R21.6 billion) unspent on transfers and subsidies.  In the Technical Support and Development Finance (Programme 8) only 61.7% was spent. The question that Members had to uncover in their interactions with NT was whether the Development Bank of South Africa (DBSA) had the requisite capacity to administer the implementation of the Jobs Fund, taking into account the slow delivery of the ASIDI project implemented by it? In addition, a total of R103.6 million had been left unspent/transferred against a budget of R750 million on the Neighbourhood Development Partnership (NDP) grant. This was due to certain municipalities’ inability to meet projected milestones. The NT had 122 vacant positions (for specialised skills) mainly due to the Department’s inability to attract suitable skills. This basically signalled capacity challenges in the NT, which was a cause for concern given its role as the custodian of public finances. In addition, the Committee might want to know the extent to which these capacity challenges impacted on its mandate, especially that which related to providing technical support to struggling municipalities.

The Department of Basic Education spent 91.4% (R12.9 billion against an available budget of R14.1 billion) in 2011/12. The major contributor for the under-spending was in Programme 4 (Planning, Information and Assessment) where only R5.5 billion was spent against an available budget of R6.6 billion.  This was mainly due to R640.3 million being unspent on the R700 million budgeted for the School Infrastructure Backlog Grant – intended primarily for the building of 49 schools in the Eastern Cape Province -- and R367.2 million on the Education Infrastructure Grant not transferred to the Eastern Cape Education Department due to slow performance. It was imperative that Members find out from the DBE the actual performance on the Education Infrastructure Grant and whether it had successfully been transferred to other Provinces other than the Eastern Cape Province. Other reasons for the under- spending included Programme 2 (Curriculum Policy, Support and Monitoring) where only  R1.7 billion or 94.6 percent was spent against an available budget of R1.8 billion, leaving R96.4 million unspent. This was mainly due to R50 million under-spending on the Kha Ri Gude project owing to delays in the procurement of textbooks. Therefore, the issue of delays in the procurement and delivery of textbooks remained a huge challenge. The underspend was also as a result of R2.1 million withheld from the Limpopo Provincial Education Department because of slow spending on the Dinaledi Schools Grant.

The Department of Cooperative Governance and Traditional Affairs regressed heavily to 96 percent (R46.2 billion against an available budget of R48.2 billion), leaving R1.9 billion unspent in 2011/12. The major reasons for this included R735.6 million (against R816.2 million) unspent in the Disaster Response Management (Programme 4). This was mainly due to nothing being spent against R305 million on the Provincial Disaster Grant. A total of R47.3 million paid out to Mpumalanga was spent against an available budget of R470 million for the Municipal Disaster Grant.  Mr Dlomo pointed out that Members should inquire from the Department what was happening in the other eight Provinces, along with all Municipalities which had not been receiving funding for an immediate response to disasters.  Furthermore, there was a huge-under spending on compensation of employees and Goods and Services, due to vacant positions. It was important to investigate the reasons for the non-filling of vacant positions in the programme and whether the duration of filling these vacancies was still within the parameters of the Public Service Regulations.  A total of R934 million of the local equitable share was not paid to municipalities owing to the offsetting of funds that had not been returned to the National Revenue Fund due to under spending on conditional grants in previous year. It was important for the Committee to have a broader engagement with stakeholders like SALGA, National Treasury and the Financial and Fiscal Commission (FFC) to ascertain if such interventions where credible and based on consensus among all affected parties.

The Department of Human Settlements (DHS) had improved significantly from the lowest 95.6 % spending in 2007/08, to stay above 98 % since then.  In 2010/11 the DHS had spent 99 % (R22.6 billion against R22.8 billion), leaving R228.9 million unspent. Much of the actual under-spending was concealed by the 100% transfer of R21.8 billion to provinces and receiving entities. These transfers did not necessarily translate into actual expenditure. The major reason for under-spending included under-spending in Programme 1, which had been allocated R233.1 million, but had used only R66.4 million. This was mainly due to a change of mandate of the Special Investigation Unit and non- utilisation of funds for the leasing of additional offices.  Programme 2 had under-spent by R6.6 million (against R39.4 million) mainly due to vacant positions emanating from a departmental turn-around strategy.  Programme 3 under-spent by R8.3 million (against R195 million) mainly due to vacant positions emanating from a departmental turn-around strategy. Programme 4 under-spent by R92.2 million (against R23.2 billion). This is mainly due to vacant positions emanating from a departmental turn-around strategy and R70.2 million unspent/transferred on the Rural Household Infrastructure Grant.  Members should inquire the reasons, nature and duration of the turn-around strategy. In addition, poor performance on the Rural Household Infrastructure Grant was a recurring issue and a cause for concern, given the urgent need to reduce the backlog and improve service delivery in rural communities.

Discussion
Ms L Yengeni (ANC) asked if the reported under-spending of the outlined Departments was a consistent trend, or if it varied.

Mr Zamisa replied that it had been a consistent trend for most of the Departments.

Mr Zamisa pointed out that the percentages for under-spending were usually misleading.  Therefore outlining of the actual figures presented a clearer picture of the actual problem.

Mr L Ramatlakane (COPE) pointed out that it was necessary for the researchers to investigate if the unspent amounts had been successfully rolled over to the current financial year.

The Chairperson commented that at a glance it could be assumed that the roll over had been successful, as the condition for rolling over of funds was that the funds had been committed.

Mr M Swart (DA) noted that the analysis was based on the current adjusted budget, therefore the rolled over funds should have been approved.

Mr Dlomo mentioned that the issue of unfilled vacancies within Departments was an issue of concern, considering that some of the positions had already been funded. He added that the possible scenario was that the money had been shifted to already existing staff members.

Mr Dlomo commented that Members should follow up on the progress made by the National Treasury in establishing the Task Force to assist the Department of Women and Children and People Living with Disabilities to deal with compliance matters.

Mr Zamisa observed that the under-spending by the Department of Social Development could be attributed to recent measures by the DSD’s anti-corruption campaign to trace individuals who were fraudulently accessing social services grants. Therefore, in this light, the under-spending should be viewed as a positive aspect.

Ms Yengeni and Ms R Mashigo (ANC) concurred that while it was welcomed that measures had been put in place to ensure that these perpetrators did not access the social services grant, it was still of paramount importance that measures be put in place to ensure that the funds were distributed to deserving beneficiaries.

Ms Yengeni stated that it was important for the researchers to follow up on whether the funds had been recovered.

Mr Ramatlakane observed that while the point raised by Mr Zamisa on the positive aspects of non-accessing of the social service grants by non-deserving individuals had contributed to under-spending was valid, the DSD had not highlighted this fact in its previous engagements with the Committee.

The Chairperson mentioned that the problem of recurring non-performance by the Departments was largely due to the fact that their actions bore no consequences.

Mr Dlomo stated that the researchers could compile a list of questions raised by the Members which could be sent in writing to the Departments, inquiring about the corrective measures put in place to address them.

Mr J P Gelderblom (ANC) pointed out that the final report containing responses from the Departments should be escalated to the Portfolio Committee, which should pick up on the issues raised by the Standing Committee.

Mr Swart reiterated that it was essential to involve the Portfolio Committees to deliberate over the issues raised. Most of the Portfolio Committees, with the exception of Public Works, seemed not to be doing their work.

Ms Yengeni suggested that the Committee invite all nine of the outlined Departments in the presentation. She requested the Chairperson to appeal to the House Chair for a whole day meeting, which could allow the Members sufficient time to interrogate the invited Departments.

Mr Gelderblom and Mr Ramatlakane concurred with the suggestion.

The Chairperson reminded Members of the need to consider other reports on the table that still required attending to.  By inviting Members from the Portfolio Committees, rules would have to be set prior the meeting in order to maximise the outcome of the meeting.

Mr Gelderblom said that in addition to the outlined nine departments, letters had to be issued out to all departments, therefore ensuring greater accountability.

The Chairperson noted that the researchers could go through the report and highlight the issues which they perceived as key areas, which they could request the Department to respond to.

Ms Mashigo noted that it was important to also follow up on the Department of Communication, which owed Members a report.

Mr Dlomo pointed out that the appointment of contractors by the Department of Social Development, as opposed to the permanent staff, while being argued as yielding some savings, had potential negative implications on the initiative to create job creation, as no skills transfer was taking place.

Ms Moshigo inquired as to the nature of the work being done by the contractors within the Department of Social Development.

Mr Dlomo mentioned that Members had to investigate the reasons for delays in funds to LoveLife by DSD.  It was important to find out how the organization had been unable to comply with the minimum standards.

Mr Ramatlakane pointed out that it was important to invite the Department of Police and Department of Justice and Constitutional Development in order for them to explain the 4 343.3% overspending on the Integrated Justice System Programme.

Mr Zamisa replied that while all entities within the cluster received funding it was not clear which Department had overall accountability for the funds.

The Chairperson pointed out that it was necessary for obtain details from the DP and DoJCD regarding the distribution of funds.

Mr Dlomo indicated that it was important to inquire about the 174.4% overspend on claims against the state or civil claims instituted against the Department for possible compensation.

Mr Dlomo noted that the President in 2011 had promised the filling of vacant posts in 2011/12 therefore it was necessary to establish the reasons for this non-filling of vacancies.

Dr S M Van Dyk (DA) inquired if the Committee had a mandate to call the Ministers to account for some of the departments’ non-performance.

The Chairperson stated that according of the PFMA, the accounting officers were accountable for the departments. However, legal advice could be obtained on the matter and as Parliament, they had a right to call on anyone.

The Chairperson and Mr Swart agreed to come back to the matter at a latter stage.

Mr Ramatlakane said that as a Committee of Parliament, and the issue being a constitutional one, it had the mandate to invite anyone. However, the matter had not reached the stage of including the Ministers. Nonetheless, the Minister of Finance in particular had been forthcoming in addressing such matters, and should the need arise, he was confident the Minister would attend.

Mr Dlomo mentioned that the new initiative introduced by the Department of Basic Education, e-learning, was being hampered by disparities which existed between provinces. Therefore, it was important for the Department to increase efforts to increase access to schools.

Mr Gelderblom asked for more information regarding Programme 8 (Technical Support and Development Finance) under the National Treasury.

Mr Zamisa replied that it entailed funds transferred to the municipalities.

The Chairperson and Mr Swart inquired about reasons for the unspent funds on the Neighborhood Development Partnership Grant.

The Chairperson requested the researchers to inquire what the vacancy rate percentage in the NT was.

Mr Zamisa replied that he would send a written request to National Treasury.

Mr Ramatlakane stated that the in the last presentation, the NT had explained that the unspent R2.5 billion was the result of a lack of readiness by the entities in terms of implementation. He added that it was important to investigate, when requesting accountability from entities, if the delay was not with NT, as it often conducted warehousing where it stored funding.

Ms Moshigo said it was important to inquire about the impact of the Dinaledi Schools Grant under the Department of Basic Education.

The Chairperson added that it was essential to have the programme extended to other schools.

Mr Swart noted that the DBE had to provide motivation for why the grant should be provided for this financial year.

Mr Dlomo reiterated that the DBE had to indicate the success, challenges and progress made. He added that most grants coming from National Government were not understood at local level, which were the implementing and receiving entities.

Ms Moshigo pointed out that the researchers had excluded the Department of Human Settlements from their dashboard on page five of the fourth quarter expenditure analysis for the standing committee on appropriations (SCOA) as at 31 March 2011.

Mr Dlomo replied that this could be rectified.

The meeting was adjourned

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