National Treasury 1st Quarter Performance 2012; Department of Women, Children & People with Disabilities Expenditure

Meeting report

Presentation by National Treasury
Mr Andrew Donaldson, Deputy Director-General: Finance – National Treasury, said that the national budget for 2012/13 was R963.6 billion. Of this, R309 billion went towards provinces’ equitable share, R75 billion to provincial conditional grants and R89 billion to state debt costs. The provincial equitable share and the general fuel levy, together with skills levy payments and wages for the President, Parliament and magistrates, were direct charges against the National Revenue Fund.  Excluding these payments, the national budget amounted to R543.6 billion.

Of this amount, the largest transfer was for social grants, followed by local government equitable share and projects in transport, human settlements, universities, health and education. The largest portion of compensation of employees’ spending was for salaries for police functions. The three largest components of payments to capital assets were for water services projects, police buildings, vehicles and equipment as well as schools infrastructure.

The Department of Social Development had the largest budget, with the majority of this allocated for social grants. This was followed by the departments of Police and Cooperative Governance and Traditional Affairs, mainly as a result of wages for police services and the local government equitable share.

In respect of expenditure during the first quarter, exclusive of direct charges, national government had spent 21.3% (R115.8 billion) of the total available budget for the entire year. As planned expenditure stood at 23.8% (R129.2 billion) of the total available budget, expenditure had, at the end of the quarter, lagged by R13.4 billion. This lower-than-expected spending across government was primarily relected under transfers and subsidies. Spending under goods and services, and payments to capital assets, had also been slower than expected. Under transfers and subsidies, the lag was primarily in the Department of Social Development, mainly resulting from an accounting technicality and therefore did not imply any problems with financial planning and/or spending.

The lag in goods and services expenditure was spread across departments, with the largest individual lag having resulted from delays in the receipt of invoices for municipal services under the Department of Defence and Military Veterans.

The lag under payments for capital assets was due primarily to delays in the payment of the school infrastructure backlogs grant and delays in the implementation of water services projects.

The Departments of Cooperative Governance and Traditional Affairs, National Treasury, Department of Human Settlements, Rural Development and Land Reform, Science and Technology and Water Affairs, were among the ten Departments that had recorded the largest lags between planned and actual expenditure.

National expenditure at the end of the first quarter indicated that compensation of employees would exceed the allocated budget (with the Department of Police most at risk of over-spending on personnel), that social grants appeared to be broadly in line with targets set and that under-spending on infrastructure projects, housing, land restitution, rural development and schools infrastructure was a possibility.

Discussion
The Chairperson said that the format of the presentation needed to be made more reader-friendly in future. Under-spending needed to be addressed, as this was of serious concern.

Mr L Ramatlakane (COPE) asked for information to be provided about the Jobs Fund, as the presentation had made no mention of this. Had a Memorandum of Understanding been signed with the Development Bank of Southern Africa around this Fund?  What were the real reasons for the noted under-expenditure?

Mr Donaldson answered that cash flows would be rolled out this year, although allocations would instead be rolled out over a five-year period.  A Memorandum of Understanding had been signed between the Minister of Finance and the Development Bank of Southern Africa (DBSA).

Ms L Yengeni (ANC) commented that the red tape around the Jobs Fund needed to be reduced in order for targets to be met.

Mr Donaldson replied that although he agreed with this sentiment, such red tape was often a necessary and effective means of ensuring good governance and effective financial management.

Ms Yengeni responded that this was not an acceptable response, as the general public were eager to see the President’s pronouncement being actualised.

The Chairperson added that the Committee would meet with National Treasury for a more comprehensive briefing around this. Such an engagement would also look at possible ways in which Parliament could help ease the blockages in this regard.

Mr M Swart (DA) asked whether the R3 billion South African Airways bail-out had been approved by National Treasury and how it would eventually be financed.

Mr Donaldson answered that this amount was a guarantee, and could only be issued after consultation with National Treasury. The amount was not listed in the budget as it was not a cash requirement and, as such, would only come under appropriations as and when it was needed. The Department of Public Enterprises had, however, given Treasury an assurance that these funds would not be needed soon. 

Mr G Snell (ANC) asked whether Treasury received reports from Departments on how they were performing against APPs. If so, could the Committee be furnished with such reports? How would the Agulhas ship be paid for?

Mr Donaldson answered that a significant amount of progress had been made in terms of specifying targets and measuring service delivery and that more progress in this regard was likely.

Ms L Yengeni (ANC) asked whether the Treasury conducted checks to ascertain whether Departments’ projections were reasonable. The system of projections needed to be looked at again, as spending was not being done in accordance with the projections. The Committee needed to receive Departments’ projections much earlier, as would help it to better fulfil its oversight role. Systems also needed to be tighter in order to avoid blaming an ‘accounting technicality’ for what appeared to be under-expenditure.

Mr Mark Bletcher, Chief Director: Health and Social Development – National Treasury, answered that a new additional table had been included in the report which allowed Members to look at planned expenditures for the quarter ahead.

Mr Donaldson answered that these ‘accounting technicalities’ were sometimes unavoidable, as Government’s accounting system was a cash-based one.

Mr Van Dyk asked why it did not instead work on an accrual system.

Mr Donaldson answered that although work was being done in this regard, it had appeared as though an accrual-based system was more difficult to manage. 

The Chairperson asked whether the Medium-Term Expenditure Framework (MTEF) was indeed working. The poor spending on the Expanded Public Works Programme (EPWP) was of significant concern and needed to be addressed.

Mr Donaldson answered that the MTEF was working, though not as well as it could. Projections were done mainly to ensure effective financial management. This was done through asking for the maximum amount of funds needed by Departments, which thereby ensured that there were enough funds in the fiscus.

Ms A Mfulo (ANC) responded that the projections should not differ so significantly from the actual expenditure.

Ms R Mashigo (ANC) asked how other stakeholders around the noted water projects were involving themselves on a more significant level. Could the Committee be informed before any decision around the bail out was made, as the Committee’s input was of great importance?

Mr Donaldson answered that the water project was a very large investment which would improve the water quality of a significant amount of people.  Although a significant proportion of funding for this project would come from tariffs which would be payable by the mines, this would not happen immediately.

The Chairperson asked for a detailed response to the question around vacancies to be given to the Committee in writing. Planning was a very important issue and the Committee would like to see less significant quarter-to-quarter differences. These differences would be avoided if there were more effective planning.  Although the new report format offered more clarity, there should be further engagement on how to enhance reporting.  It was important to monitor whether money for transfers was being used for its allocated purposes. The credibility of budgets needed to be improved, as the Committee wanted to approve documents that were credible, in order for allocations to be credible as well. 

Minutes
Presentation by the Department of Women, Children and People with Disabilities
Ms Thandeka Mxenge, Acting Director General – Department of Women, Children and People with Disabilities, said that areas of concern included the non-prioritisation of the budget towards the filling of key positions, failure to spend within the allocated budget, unauthorised expenditure, failure to meet targets, weak financial management, a lack of skills in critical areas as well as unstable Director-General and Chief Financial Officer positions.

As a result, it had agreed to spend within the allocated budget, conduct financial management training workshops, to secure the provision of technical support from National Treasury, and to meet with the Minister of Finance. In addition, a turnaround strategy was being developed and implemented, and a Chief Financial Officer and Director-General were to be appointed. Vacancies in the areas of finance, risk, audit and asset management would be filled. 

Progress to date included the implementation of austerity measures to ensure expenditure within the budget, the addition of R12 million to the Department’s compensation budget, the enlisting of a support team from Statistics SA, the secondment of a Chief Financial Officer from Treasury and the development of a draft turnaround strategy.

What remained to be done by the Department included the finalisation of the turnaround strategy and the draft of an implementation plan, the review and finalisation of financial and supply chain management delegations by November 2012, the establishment of a financial procedures manual by December 2012 and the finalisation of the recruitment of additional human resources, financial and supply chain management staff by March 2013.  It also needed to review and update its register and incorporate this into its Logistics Information System (LOGIS) by December 2012, train staff on suspense account management by March 2013, implement the findings of the Fluxmans Report, appoint both a Director-General and Chief Financial Officer as soon as possible, and develop its expansion plan by end-December 2012. 

Discussion
Ms H Lamoela (DA) asked whether the amount it had requested was R12 million or R19 million. Why was the turnaround strategy document listed as ‘confidential’?

Mr George Tembo, Director: Public Finance answered that the amount requested was in total R19 million, R12 million of which was related to the implementation of its turnaround strategy. The remaining R7 million was to be used for the lease of a new building, as the Department needed this additional space. Part of the R12 million would also be used for the compensation of employees. Although some had been brought into the Department wrongly, Government still had this liability.

Ms Mxenge added that the document was not confidential, per se, though was marked as such as it was not yet ready for public consumption. It had been presented to the Committee as the Department did not want it to appear as though the turnaround strategy it was presenting on, was non-existent.

The Chairperson asked why, if the turnaround strategy was still a working document, the Department had given this to the Committee.

Ms Mxenge answered that it was presented to the Committee, as the Department did not want it to appear as though the turnaround strategy it was presenting on, was non-existent.

Mr Swart asked for more detail around the Fluxmans Report to be provided to the Committee.

Ms L van der Merwe (IFP) said that it was important for the findings of the Fluxmans Report to be included.

A Member responded that, as the findings of this report were still sub judicae, it could not yet be made available.

Ms Mxenge answered that the report pointed towards weaknesses in the Department’s policies and recruitment procedures, and could be made available to the Committee.

Mr Ramatlakane asked why the questions the Committee had posed at its previous engagement with the Department had not been answered. What were the target dates set for the appointment of a Director-General?

Ms Mxenge answered that although the two key positions had been advertised, it was hard to commit to a set date for the filling of these positions. The process was, however, currently under way.

Ms Mfulo asked where the R5.8 million it had been advised by National Treasury to use, would be coming from. It was of great concern that managers did not appear to know what their budgets were.

Ms Mxenge answered that after gauging what was needed for its goods and services programme, the Department had sourced this money for other programmes.

Mr T Matjeni, Acting Chief Financial Officer – Department of Women, Children and People with Disabilities, added that systems were currently in place which sought to ensure that managers were informed about what was taking place.

Mr Van Dyk said that some of the target dates it had set itself were too soon, and there might be a need for a more long-term approach.

Ms Mashigo asked what skills transfer had been done by the Statistics SA staff. How were the concerns raised by the Auditor-General’s office being addressed?  More progress should have been made by now, particularly in relation to financial management challenges.

Ms Yengeni asked for more detail around what informed the R12 million requested.

Ms Lamoela asked what the impact of over-spending the R12 million was.

The Chairperson commented that many of the questions and issues raised by Members had been noted by the Department as things that needed to be done. A detailed breakdown of the R3.7 million in irregular expenditure was to be given to the Committee. The Department would need to be supported with its turnaround strategy. Although the challenges it currently faced could not be addressed in the short-term, the Committee could be counted on for its support. 

The meeting was adjourned.