Third Quarter Expenditure Analysis 2012/13: Researchers' briefing; Parliamentary Budget Office Director Appointment: discussion

Standing Committee on Appropriations

16 April 2013
Chairperson: Mr E Sogoni (ANC)
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Meeting Summary

Adv Frank Jenkins, Senior Parliamentary Legal Adviser, had done some comparative research on appointment procedures.  The Lotteries Act (No. 57 of 1997) and the National Development Agency Act (No. 108 of 1998) both required 'an open and transparent process of appointment'. Interestingly, these Acts provided more detail than the Money Bills Amendment Procedure and Related Matters Act (No. 9 of 2009).
The Lotteries Act distinguished between the nomination process and the appointment process. Firstly, under the Lotteries Act, one first got to the point of compiling a short list or list of nominations, and thereafter a committee of the National Assembly would make a recommendation in an open and transparent process. So firstly, the committee had a list of names and secondly the committee dealt with the matter in an open and transparent process. The National Development Agency Act required a short list of candidates from civil society to be submitted to the Minister who must then consider that list 'in an open and transparent manner'.

Whether one adopted a process of short-listing, advertising, or head-hunting was not necessarily core to the process being open and transparent. Including the matter on ‘the Z list’ and then to discuss it in an open committee gave recognition to the concern for openness and transparency. As to the interview process it was up to the committee concerned to decide how to ensure openness and transparency. It was sufficient for the committee to discuss the candidate based on the documents in front of it, such as a curriculum vitae but he would agree that there were good grounds for an interview process, especially as in the case of the Parliamentary Budget Office the successful candidate would be involved in supporting the work of the financial committees. The Money Bills Amendment Procedure and Related Matters Act was not clear whether there should be a joint report. There would be a procedural issue for all four Committees to report to the National Assembly and the NCOP jointly, as NCOP committees could not report to the National Assembly and vice versa. So any joint report would have to be the two Standing Committees on the one hand and the two Select Committees on the other. Then each House would probably approve each respective report subject to the concurrence of the other House.

An ANC Member suggested forming a multi-party joint ad hoc committee to constitute the interview panel as in the process to appoint commissioners for the National Youth Development Agency (NYDA). A DA Member emphasised the need for an interview of the candidate for the sake of transparency and labour relations. He also wanted a multi-party process as not all parties attended the financial Committees. The Chairperson thought that on the basis of the Money Bills Amendment Procedure and Related Matters Act the Committee could make its own recommendation or a joint recommendation. All the four financial Committees had agreed on the need for an interview. An IFP Member wanted the Committee formally to adopt its report, but Adv Jenkins said that it was not a final report but a draft report. He suggested that what was captured in the draft report should be discussed with the other four Committees in order to achieve a common position. The best outcome would be a common report, although each Committee would submit the common report in its own name. So there should be a day or two for discussions around it. The IFP Member asked the Chairperson to discuss on Members' behalf with the other Chairpersons. The Chairperson said that it would be necessary for Adv Jenkins to assist the Committees in reference to the conditions and terms of reference.

The Committee's Parliamentary Researchers, gave Members their Third Quarter Expenditure Analysis 2012/13 Presentation, giving an overall background to third quarter government spending for the 2012/13 financial year to highlight issues of under or over expenditure, to highlight and flag the spending patterns of the national departments, to draw the attention of Parliament and the Executive to the key issues, and to improve public spending patterns and compliance. Thereafter they gave an analysis of specific departments - Department of Public Works (DPW), the Department of Water Affairs (DWA), the Department of Cooperative Governance and Traditional Affairs (CoGTA), The Department of Public Service and Administration (DPSA), and the Department of Land Reform and Rural Development. The aim was to see, over a period of three years, what the picture was in the third quarter, and which departments were likely to contribute to fiscal dumping in the fourth quarter. The departments highlighted in red – the DWA, the DPSA, and the Department of Land Reform and Rural Development had never in the past three years reached 70% expenditure of the year's budget by the end of the third quarter.  When such departments reported at the end of the fourth quarter that they had spent 100%, one had to ask how any department could spend as much as 50% of its annual budget in one quarter after spending the same proportion in the three preceding quarters.

The researchers explained key issues emanating from the 2011/12 audit reports and warned that vacancies in the audit department of the Department of Rural Development and Land Reform compromised that Department's ability to manage its risks. The key issues in the third quarter were no different from those in the 2011/12 audit report. There were vacancies in key positions and inadequate skills, poor financial management in the recording of transactions by the finance department, poor monitoring of performance information and compliance, insufficient preparedness, and a failure to implement and monitor action plans. Not all state-owned land had been accounted for.

Members called for an itemisation of the Department's capital assets. The Chairperson was perturbed that the Department had not taken the Auditor-General of South Africa (AGSA)'s recommendations seriously. A DA Member wanted the Committee to follow-up on the Department's audit of state-owned land. The Member asked when the Department was going to do the audit.

The Department of Public Service and Administration (DPSA) (Vote 12) too had never reached even 70% spending by the end of the third quarter since 2009/10. Against R726.9 million available budget, an amount of R240.1 million was left for spending in the third quarter. Except for transfers and subsidies, spending on major economic classifications remained low. There were no improvements under compensation of employees or goods and services between 2011/12 and 2012/13. The root of the problem was that the Department was not filling positions. Senior management positions were vacant for more than 12 months. The Committee should consider, among other issues, how the Department had been functioning without senior managers and how it could lead by example with such a poor record of filling its own vacancies.

The Department of Public Works had persistent under spending on infrastructure due to the lack of capacity within the Department to plan for infrastructure projects. In Programme 4 there was an under spending due to failure to fill vacant positions. The Department should provide clarity on how it intended addressing under expenditure on property payments and lease agreements. Such under expenditure had affected the expenditure on goods and services. The Department should provide clarity as to whether there was a plan to insure capacity for infrastructure projects in order to avoid under expenditure on CAPEX. In addition to National Treasury it would also be useful to have the AGSA present when meeting with departments in order to share the AGSA's perspective.

A DA Member asked if the Department of Public Works had an internal audit section, and, if so, was it fully functional. An IFP Member said that in the recent Scopa meeting (20 March 2013) with DPW and its Minister and Deputy Minister three quarters of the responsible officials were not present, but had been replaced by new people. It was necessary to come to grips with how to deal comprehensively with these departments and their ministers. Otherwise the Committee would be receiving the same information five years hence.    

The Committee's concern with the Department of Cooperative Governance was disaster management, in which CoGTA was spending poorly. Most of the money spent on the Community Work Programme (CWP) was on consultants rather than going to create regular work.  

The researchers noted a decline in the Department of Water Affairs' trend of expenditure from 61.8% to 49.6%.  There was need for alignment between the compensation for employee’s budget and the CAPEX as there was for the Department of Performance Monitoring and Evaluation (DPME), with which the Committee had dealt with the previous day. There was a similar example with the DPSA in which 98 positions had not been filled for similar reasons. These cross-cutting problems showed the lack of planning between CAPEX and personnel budgets.  The AGSA had conducted workshops to assist the Department in understanding the requirements for preparing a strategic plan but there was no impact on the audit outcomes. The Department suffered from instability of leadership, inadequate monitoring, and lack of consequences for transgressions of the law. The Department had had acting directors-general for three to four years.

The Chairperson was concerned at delays in gathering non-financial performance information. There was discussion on the need to focus on the third quarter report and its relation to the fourth quarter report. The Chairperson said that the Committee's concern was above all with the third quarter in order to benchmark what a department had reported. He felt that the Committee should discuss with the Public Service Commission (PSC) or the AGSA on how to work with the DWA to examine how, if a department such as the DWA at the end of December had spent only 49%, yet at the end of the year had spent 96%, the last quarter expenditure had been spent. Had this money really been spent on delivering services?  Where was the DWA spending this money? An ANC Member wanted the Committee to meet the departments concerned not a month later than each quarterly report and asked how, over four years, the Committee had improved the performance of departments. 'We are too late with our recommendations.'  Another ANC Member believed that departments such as DWA did not listen to the Committee and the Committee should express itself in strong terms in the interests of a better life for all. A DA Member could not agree more and supported making an example of DWA by taking away from it allocations that were not critical to service delivery. The Chairperson advised a more moderate approach and noted that performance of the DPW had improved by taking note of the Standing Committee's recommendations.
 

Meeting report

Introduction
The Chairperson welcomed Members and observers to the meeting which was to deal with the third quarter report. He noted an apology from Ms L Yengeni (ANC) who was unwell. He noted a request from the Department of Performance Monitoring and Evaluation (DPME) to postpone its briefing on the payment of contractors/ suppliers within 30 days of receipt of invoices. He also advised Members that the Committee had again been asked to defer the National Youth Development Agency briefing scheduled for 18 April.

Parliamentary Budget Office Director Appointment
Preliminary discussion

The Chairperson said that the purpose of the meeting was to decision that the Committee had already taken informally. He referred Members to the [Draft Committee Resolution on the Parliamentary Budget Office Director Appointment]. This was for Members only. The Chairperson read the wording proposed.

Mr M Swart (DA) said that at a minimum there should be an interview with the candidate, as was reflected in the Committee's draft recommendation. The Committee had also said that there should be a combined meeting with the Standing Committee on Finance. He feared that the Standing Committee on Finance was considering amendments to the Money Bills Amendment Procedure and Related Matters Act (No. 9 of 2009) without consulting the Standing Committee on Appropriations. This was not acceptable.

Ms R Mashigo (ANC) said that the Standing Committee on Appropriations had made a decision, but in response to a request by Mr L Ramatlakane (COPE) had discussed the matter again. She said that Mr Ramatlakane had informed Members of what he had heard was discussed in the Standing Committee on Finance. On that basis the Standing Committee on Appropriations had had an extensive discussion. 

The Chairperson agreed with Ms Mashigo. The Committee supported the appointment of Professor Mohammed Jahed [who had been seconded by the Development Bank of Southern Africa (DBSA)], but felt that a multi-party panel should interview him, rather than just the four committee chairpersons who served on the Political Task Team (PTT) who, of course, were all Members of the ANC.

Mr Swart agreed but said that this should be clear in the Standing Committee on Appropriations recommendations.

Mr N Singh (IFP) said that the report had to be corrected. If there was an alternative view, it must be documented. There must be consistency in the report. He affirmed that Prof Jahed was the ideal candidate for the job, but rather than be appointed, he should be ‘offered’ the position.

The Chairperson agreed that the wording should be corrected to read “The interview must be conducted”.

The Chairperson read the revised wording.

Mr Singh fully supported the new wording. When the report went to the House it would be a joint report of all the committees responsible, but he asked to what extent would the recommendations of this Standing Committee on Appropriations be taken on board by all the committees responsible -the four financial committees [Standing Committees on Appropriations and Finance and Select Committees on Appropriations and Finance]. Mr Singh said that, with due respect, he did not agree with the legal opinion that transparency did not entail interviewing and related procedures. To him transparency meant having a process. So far there had not been a process. In the Appropriations Committee's present draft resolution, the Committee was recommending that the person mentioned 'be offered appointment' not 'be appointed'. This would still be subject to that person's accepting or declining the offer and 'coming up with the terms and conditions of that appointment'.  Secondly, as in Mr M Swart (DA)'s view, there should be an interview by a multi-party committee 'of even the one person'. That would make the process a little more credible in terms of openness and transparency. Otherwise Members could leave themselves so open [to criticism] and could be compromising the individual in future whereby an opposition Member might stand up and say that this appointment was an ANC appointment, as Parliament would have simply picked one person and appointed him. In such a case, some might question the appointee's objectivity in such a high office. Therefore there should be an offer and an interview, even if only of one person.

Mr Swart argued that, on the basis of labour relations, if there was someone who heard about this position that person might ask why Parliament had made an appointment without advertising. To do so might not be considered transparent. At the very least, it was necessary to go through the motions of interviewing the candidate.

Ms A Mfulo (ANC) countered by saying that head-hunting was allowed in terms of labour relations, and the Committee’s recommendation was not ‘an ANC thing’. That the other Committees had expressed their views meant that it could not be merely an ANC decision.

The Chairperson agreed Ms Mfulo, but not with Mr Singh.  He had agreed with Mr Swart that even if there was only one candidate identified, that candidate would undergo the process of being interviewed. This was why the Standing Committee's minutes reflected there would be a multi-party panel other than the four Chairpersons of the financial committees who constituted the Political Task Team (PTT).  The Committee’s recommendation reflected the multi-party panel. Other Members of other committees would be allowed to participate as well. As he had said in a previous meeting, the matter should be on ‘the Z list’ so that all those
interested could attend when the matter was on the agenda.

Senior Parliamentary Legal Adviser’s Opinion
Adv Frank Jenkins, Senior Parliamentary Legal Adviser, had listened to some concerns over the past few weeks on openness and transparency. He had done some comparative research on appointment procedures, as there were at least two relevant examples in which appointment procedures used those terms, although these terms were most usually associated with supply chain management (SCM) and financial management.

The Lotteries Act (No. 57 of 1997) and the National Development Agency Act (No. 108 of 1998) both required 'an open and transparent process of appointment'. Interestingly, these Acts provided more detail than the Money Bills Amendment Procedure and Related Matters Act (No. 9 of 2009).

The Lotteries Act distinguished between the nomination process and the appointment process. Firstly, under the Lotteries Act, one first got to the point of compiling a short list or list of nominations, and thereafter a committee of the National Assembly would make a recommendation in an open and transparent process. So firstly, the committee had a list of names and secondly, the committee dealt with the matter in an open and transparent process.

The National Development Agency Act required a short list of candidates from civil society to be submitted to the Minister who must then consider that list 'in an open and transparent manner'.
Adv Jenkins therefore understood that there was a difference between getting those names or the nominations before a committee or the minster concerned and the actual dealing with the list in an open and transparent manner. So whether one adopted a process of short-listing, advertising, or head-hunting was not necessarily core to the process being open and transparent.

Adv Jenkins said that as the Chairperson had said, to include the matter on ‘the Z list’ and then to discuss it in an open committee gave effect to the concern for openness and transparency.

The second question was the interview process. Here it was up to the committee concerned to decide how to ensure openness and transparency. If the committee decided to discuss the candidate based on the documents in front of it, such as a curriculum vitae (CV), this was good enough. He would agree that there were good grounds for an interview process, especially as in the case of the Parliamentary Budget Office, the successful candidate would be involved in supporting the work of the financial committees. However, even without the interview process, he did not think that the appointment procedure would be invalid. On the other hand, if the Committee decided to hold an interview process, this was fair. It just needed to be discussed through the various channels in Parliament.

Thereafter the Committee could report to the House that it wanted to make an offer, subject to an interview process. As it would be a conditional recommendation to the House, he was not sure how the House would respond, as that condition was almost outside the power of the House to fulfil. He would prefer that the Committee, rather than make a conditional recommendation to the House, go ahead and hold the interview, and then report to the House that it had discussed the matter, had an interaction with the candidate, and resolved to recommend appointment.

He advised giving the staff one or two days to see if they could arrange it, as well as to discuss it politically. Thereafter the Committee could report.

It had to be asked if it should be a joint report. The Money Bills Amendment Procedure and Related Matters Act was not clear on this. The Committee could report individually. The National Assembly Table would probably say that the House would adopt the report subject to the concurrence of the National Council of Provinces (NCOP), in a way similar to that in which the fiscal framework was handled. However, there would be a procedural issue for all four Committees to report to the National Assembly and the NCOP jointly, as NCOP committees could not report to the National Assembly and vice versa. So any joint report would have to be the two Standing Committees on the one hand and the two Select Committees on the other. Then each House would probably approve each respective report subject to the concurrence of the other House.

Discussion
The Chairperson thought that when Mr Singh had referred to a joint report, he would have meant a joint report of the two Standing Committees. However, since the matter concerned the four Committees it was necessary to keep the two NCOP Committees abreast of the Standing Committee's views. There should be concurrence from both sets of Committees when the final recommendation was drafted.

He noted that the Appropriations Standing Committee's recommendation said 'subject to this interview, the Committee recommended offering this appointment'. It would be good if, the next day, the two Standing Committees could be at the same level. It would also be wise if one could send 'a finished product' to the House.

Mr Swart said that there were many small parties which did not have Members who attended the Appropriations or the Finance Standing Committees. Such Members could, in the National Assembly, criticise the Standing Committee. It would be better if all the parties could participate in the interview process, to make the decision fully capable of being defended. 

The Chairperson asked Members to assume that the Standing Committee had adopted its report. On that basis, he would go to the other Chairpersons and tell them that the Standing Committee had adopted its report and that the next step would be to conduct an interview, so that when a report went to the House, it would say that an appointment had been made. 

Mr G Snell (ANC) said that the Money Bills Amendment Procedure and Related Matters Act implied that all four Committees should make an appointment. That would mean everyone in those Committees. He referred to the process to appoint commissioners for the National Youth Development Agency (NYDA), in which there was a joint ad hoc committee. If it was not possible for everyone on the four Committees to take part, would it not be better to recommend forming a multi-party joint ad hoc committee to constitute the interview panel.    

The Chairperson said that each Committee had taken effectively the same decision. Section 15(7) of the Money Bills Amendment Procedure and Related Matters Act said that any Committee considering making a recommendation contemplated in Section 15(5) must do so in an open and transparent manner. He thought that this was in the event that there was no concurrence. Section 5 indicated that the Committees contemplated in Section 4 must recommend to their respective Houses. This was the Act that established these Committees. He referred further to the Act. He thought that on the basis of the Act, the Committee could make its own recommendation or a joint recommendation.

He thought that what the Committee was resolving at this stage was to go to one's colleagues and say that the Committee had reached a conclusion and that the next step was to hold an interview. All the Committees agreed on the need for an interview.

Mr Singh said that therefore what the Committee had agreed earlier was in order, but that the Committee should formally adopt, while he was still present to make up a quorum, what it had agreed.     

Adv Jenkins said that it was not a final report but a draft report. He suggested that what was captured in the draft report should be discussed with the other four Committees in order to achieve a common position. The best outcome would be a common report, although each Committee would submit the common report in its own name. So there should be a day or two for discussions around it. 

Mr Singh asked the Chairperson to discuss on Members' behalf with the other Chairpersons and to include in his discussions the conditions and terms of reference as those were one of the responsibilities prescribed in the Money Bills Amendment Procedure and Related Matters Act. 

The Chairperson thanked Mr Singh for raising this matter. However, it would be necessary for Adv Jenkins to assist the Committees in reference to the conditions and terms of reference. He thanked Members for their input.

Third Quarter Expenditure Analysis 2012/13 Presentation
Mr Phelelani Dlomo and Mr Musa Zamisa, Parliamentary Researchers, gave Members the Standing Committee’s Third Quarter Expenditure Analysis 2012/13 presentation.

Background
Mr Phelelani Dlomo said that this analysis provided an overview of third quarter government spending for the 2012/13 financial year to highlight issues of under or over expenditure, to highlight and flag the spending patterns of the national departments, to draw the attention of Parliament and the Executive to the key issues, and to improve public spending patterns and compliance. The Standing Committee on Appropriations was established in terms of Section 4(3) of the Money Bills Amendment Procedure and Related Matters Act (No. 9 of 2009). This Act required the Committee to consider and report on the spending issues and for National Treasury to publish actual expenditure (in terms of Section 32 reports).

Overall allocation and expenditure
An amount of R543.6 billion was allocated through the Appropriations Act, excluding a direct charge of R419.9 billion (which was not allocated through that Act). R158.6 billion was allocated to current payments. R371.6 billion was allocated to transfers and substances, and R14.6 billion was allocated to capital expenditure (CAPEX). Overall expenditure at the end of the first quarter was R396.5 billion (72.6%) slightly increased by 0.8% compared to the same period in 2011/12 where government spent R363.0 billion or 71.8%, while in 2010/11 government had spent R342.8 billion or 73.5% in the same period.

Expenditure on economic classifications
Current payments represented expenditure of R110.7 billion or 69.5% of the allocated R159 billion. Transfers and subsidises represented expenditure of R278.1 billion of R371.3 billion or 74.9%. Payments for capital assets represented expenditure of R7.2 billion or 50.2% of R14.5 billion at the end of the third quarter. The main increase in economic classification expenditure was identified in current payments and CAPEX. Under current payments the main driver of expenditure was compensation of employees. Again capital expenditure (CAPEX) had shown a major increase in expenditure of 50.2% compared to the 44.8% spent in the last financial year.

Analysis of specific departments
The following departments were selected: Department of Public Works (DPW), the Department of Water Affairs (DWA), the Department of Cooperative Governance and Traditional Affairs (CoGTA), The Department of Public Service and Administration (DPSA), and the Department of Land Reform and Rural Development.

The aim was to see, over a period of three years, what the picture was in the third quarter, and which departments were likely to contribute to fiscal dumping in the fourth quarter. The departments highlighted in red – the DWA, the DPSA, and the Department of Land Reform and Rural Development had never in the past three years reached 70% expenditure of the year's budget by the end of the third quarter.  When such departments reported at the end of the fourth quarter that they had spent 100%, one had to ask how any department could spend as much as 50% of its annual budget in one quarter after spending the same proportion in the three preceding quarters.

Department of Rural Development and Land Reform (Vote 33)
Mr Musa Zamisa said that the Department had never reached even 70% spending by the end of the third quarter since 2009/10. The spending pattern had never improved since 2010/11 when it was at least above 65%. In 2012/13 only R5.5 billion was spent against R8.9 billion available budget. The Department was behind by R1.5 billion given its spending projection of R7 billion. Overall a total budget of R3.5 billion was left for spending in the third quarter.

Except for substantial overspending in payments for capital assets, spending was low across the economic classifications, as was the case in 2011/12.

The main reasons for substantial overspending in payments for capital assets were the department's efforts, in the year under review, to hasten the settling of restitution claims. Otherwise, under spending was because of slowness in the filling of vacant positions, especially in the audit component, and delays in the implementation of the Comprehensive Rural Development Programme (CASP) due to supply chain processes - hence delays in contract appointments.

Mr Zamisa warned that the unfilled vacancies in the audit department compromised the Department's ability to manage its risks. 

Mr Zamisa listed key issues emanating from the 2011/12 audit reports on the Department of Rural Development and Land Reform. The Department received a qualified audit opinion with findings, with R7.84 million of irregular expenditure as well as the R6.72 million of fruitless and wasteful spending.

The key issues in the third quarter were no different from those in the 2011/12 audit report. There were vacancies in key positions and inadequate skills, poor financial management in the recording of transactions by the finance department, poor monitoring of performance information and compliance, insufficient preparedness, and a failure to implement and monitor action plans. Not all state-owned land had been accounted for.

The Committee should consider the following issues. Was the Department struggling to attract suitable candidates in the internal audit component, and if it was a budget-related issue or a shortage of this skill in the market? How long had there been an issue of staff shortage in the audit component and what was the breadth and depth of the problem? In other words, how many personnel were required and in which areas, and which employment levels were most affected? Given the challenge of vacancies in the audit component which had persisted since the first quarter, how was the Department performing risk management to avoid unauthorised expenditure as well as fruitless and wasteful spending? Besides vacancies in the audit component, which other areas had critical vacancies? How far had the turnaround strategy that the Department had reported in the third quarter of 2011/12 progressed? What seemed to be the challenge with the implementation of the Comprehensive Rural Development Programme?

The Department must provide detailed information regarding delays in rural development and infrastructure programmes. In other words, which programmes were affected by delays and where? With this kind of performance and lack of progress, how would the Department avoid, in 2012/13, a repeat of the qualified audit opinion that occurred in 2011/12? With the current performance, would the Department be able to avoid, in 2012/13, a repeat of an amount of R7.84 million of irregular expenditure occurred in 2011/12? How did the Department intend avoiding, in 2012/13, a repeat of the R6.72 million of fruitless and wasteful spending incurred in 2011/12?

Discussion
Mr Singh asked, for a future meeting, for itemisation of capital assets.

Mr Zamisa referred to the National Treasury's report.

Mr Singh asked if the figure R7.84 million for irregular expenditure should be R7.84 billion.

Mr Zamisa confirmed that R7.84 million for irregular expenditure was correct.

The Chairperson was perturbed that the Department had not taken the AGSA's recommendations seriously.

Mr Swart wanted the Committee to follow-up on the Department's audit of state-owned land. When would it do the audit?


Department of Public Service and Administration (DPSA) (Vote 12)
The trends shown in the graph were that this Department too had never reached even 70% spending by the end of the third quarter since 2009/10. The 2012/13 spending of 66% showed little improvement from the previous financial years. In 2012/13 only R486.7 million was spent against R726.9 million of the available budget. Overall a total budget of R240.1 million was left for spending in the third quarter.

Except for transfers and subsidies, spending on major economic classifications remained low. However, there were no improvements under compensation of employees or goods and services between 2011/12 and 2012/13. This was where the root of the problem lay. The Department was not filling positions. This affected payment for capital assets negatively. There was a substantial decrease in payments for capital assets from 105.6% to 37.4% in 2012/13.

Moreover, as Mr Zamisa pointed out, if the DPSA, as the custodian of the public sector, was not itself filling positions, how could it have credibility when it told other departments to do so?

The main reasons for under spending were vacant positions, insufficient accommodation resulting in 98 vacant positions, and non-spending on goods and services due to vacant positions. Key issues emerging from the audit report 2011/12 were that the Department received a qualified audit opinion with findings. There was R1.6 million of irregular expenditure. The following issues emerging from the third quarter were no different from those emerging from the 2011/12 audit report: vacancies in senior management positions and leadership instability - there were three ministers the last 12 months. Senior management positions were vacant for more than 12 months. In fact the AGSA had pointed out that intervention was required in the filling of vacant positions.

The Committee should consider the following issues. It was a concern that the Department had a vacancy rate as high as 98 vacant positions. Why was this and how many of these were funded vacant positions? What seemed to be the area with the issue of office accommodation? How long had office accommodation been a problem in the Department? How had the challenge of the high vacancy rate affected the performance of the Department? How would the Department be able to exercise its oversight over the non-filling of vacant positions and other departments if it could not fill vacant positions within itself? Which areas of the Department were affected by the office accommodation and vacancy rate problems? At what level of employment were these vacant positions? How had the Department been functioning without senior managers? Given the lack of progress in the filling of vacant positions, how would the Department reverse the R1.6 million of irregular expenditure occurred in terms of the 2011/12 AGSA report?

Department of Public Works
Mr Dlomo said that the Department was allocated R7.9 billion for the 2012/13 financial year. The Department spent only R5.6 billion or 70.8% against a projected spend of R6.3 billion or 80.4%. There was under expenditure of some R760.9 million or 12%. The major under expenditure was identified in Administration (Programme 1), Immovable Assets Management (Programme 2), and the Property and Construction Industry Policy and Regulations (Programme 4). The reasons for under expenditure were listed. The slow spending on infrastructure was due to delays in the implementation of some of the infrastructure projects of the Department. This under-spending on infrastructure had persisted for twelve months due to the lack of capacity within the Department to plan for infrastructure projects. In Programme 4 there was an under-spending due to failure to fill vacant positions.

Discussion
Mr Swart asked if the Department of Public Works had an internal audit section, and, if so, was it fully functional.

Mr Dlomo replied that the DPW had an internal audit section, but it was for the DPW which would be able to explain if the internal audit was capacitated. He did not want to answer on behalf of the DPW.

The Chairperson urged Mr Dlomo to find out more in the course of his research, as the AGSA had raised many issues which pertained to the internal audit function.

Mr Singh emphasised that the DPW was not even in the intensive care unit (ICU) but had been cremated already. He referred to the recent SCOPA meeting of 20 March 2013 with DPW and its Minister and Deputy Minister. Three quarters of the responsible officials were not present, but had been replaced by new people. It was necessary to come to grips with how to deal comprehensively with these departments and their ministers. Otherwise the Committee would be receiving the same information five years hence.    

The Chairperson said that Mr Singh had raised a very important point.

Department of Public Works (continued)
Mr Dlomo said that Members had already alluded to issues which emerged in the AGSA report, in which the Department had received an audit disclaimer with findings, and in which Supply chain management (SCM) remained a major risk in the Department. He did not list the issues here but referred Members to the presentation and report and drew Members' attention to the interventions recommended by the AGSA for the Department to improve its audit outcomes in the next financial year. Poor contract management was an issue of especial importance. Human resource management and developing a culture of leadership needed special attention. 

The Committee should consider the following issues. The Department of Public Works should provide clarity on how it intended addressing under expenditure on property payments and lease agreements. Such under expenditure had affected the expenditure on goods and services. The Department should provide clarity as to whether there was a plan to insure capacity for infrastructure projects in order to avoid under expenditure on CAPEX. The Department should explain the measures put in place to address the unauthorised, irregular, fruitless and wasteful expenditure. The Department should implement its improvement plan of action as agreed with the Auditor-General.

Mr Dlomo said that in addition to National Treasury it would also be useful to have the AGSA present when meeting with departments in order to share the AGSA's perspective.

Discussion
The Chairperson agreed. Such hearings should add value and not merely be a routine matter.

Department of Water Affairs
Mr Dlomo noted a decline in the DWA's trend of expenditure from 61.8% to 49.6%.

The Department of Water Affairs was allocated R9 billion for the 2012/13 financial year. However, the Department spent only R4.5 billion or 49% as against a projected amount of R6.2 billion or 69.1%. There was under expenditure of R1.8 billion or 28% at the end of the third quarter at 2012/13. This had been identified in the Water Infrastructure and Management (Programme 3), Regional Implementation Support (Programme 4), and International Water Cooperation (Programme 6).

The reasons for under-spending included an unspent amount of R176.3 million on goods and services in the Regional Implementation Support programme and in the International Water Cooperation programme. Further reasons were slow spending on computer equipment due to insufficient offices, delays in the training course which started in the third quarter and payments which were to be made at the end of the fourth quarter, and the advertising prices of vacant positions which took longer than anticipated.

Mr Dlomo pointed out the need for alignment between the compensation for employee’s budget and the CAPEX as there was for the DPME, with which the Committee had dealt with the previous day. There was a similar example with the DPSA in which 98 positions had not been filled for similar reasons. These cross-cutting problems showed the lack of planning between CAPEX and personnel budgets.  

The Department of Water Affairs reasons for under expenditure were as follows. There was an unspent amount of R491.2 million on transfers and substances for the Water Infrastructure Management programme as a result of the late submission of invoices for the work done in the bulk water distribution (De Hoop Dam). There had been delays in the appointment of professional service providers in respect of the dam safety rehabilitation project. There was an unspent amount or R854.3 million under the Regional Implementation and Support programme as result of the delayed delivery of new machinery and equipment purchased abroad. There had been a delay in the delivery or water pipes in Mpumalanga. There been a delay in the land expropriation and processing of water licensing. The Administration programme had reported over expenditure of R625.2 million as against a projection of R603.8 million. The Department had spent R21.4 million more than the planned expenditure. This was a result of the expanded organisational structure and recruitment advertisement costs, information technology (IT) services, and contract payments.

The following issues had emerged in the AGSA's report for 2011/12. The DWA had received a qualified audit opinion with findings. There was poor management of projects in provinces and inadequate monitoring of transactions. There was non-compliance on procurement and contract management. There was need for clarity on the performance management system and staff roles. The AGSA had conducted workshops to assist the Department in understanding the requirements for preparing a strategic plan and the importance of having a system of collecting and reviewing information to ensure accuracy, but there was no impact on the audit outcomes. The Department suffered from instability of leadership, inadequate monitoring, and lack of consequences for transgressions of the law. The Department had had acting directors-general for three to four years. The Department should implement a change management process to ensure that people responsible for finances in the provinces were reporting directly to the national Chief Financial Officer (CFO) to avoid this disjuncture, whereby the CFO was held responsible but provincial financial officers were not reporting to the CFO. There was irregular expenditure of R1 075.7 million. There was fruitless and wasteful expenditure of R22.7 million.

The AGSA had proposed interventions in procurement and contract management, leadership, human resource management, and information technology management.

Mr Dlomo noted in particular lack of competitiveness and awarding contracts without disclosure of relationships between officials and those to whom contracts were awarded. Also leave periods were not recorded accurately and in full. Funded vacant posts were not filled on time. Performance management needed attention.  

As to contracts in the Department of Water Affairs, appointments and expenditure on consultants, about 25 contracts were audited according to the 2012/13 performance audit report by the AGSA. The total expenditure on consultants between 2008/09 and 2010/11 amounted to R4.2 billion yet the real value of these contracts was only R953.6 million. The vacancy rate was 30% and as a result some consultants were appointed to perform the Department's core functions. The outsourcing of the core mandate posed a risk to the Department that affected continuity and required institutional memory. In terms of the percentage, about 47% was made up of contractors outsourced to perform the core mandate and 53% performed the non-core functions. The Department did not conduct a cost benefit analysis to determine the impact of appointing contractors compared to the creation or filling of internal vacancies. In the absence of a cost benefit analysis, there was a risk that the appointment of consultants was not the most economic decision. It was clear that there was a positive relationship between the vacancy rate and the appointment of contractors/consultants. This went against the governmental objective of creating decent work. DWA had about 14 projects with 46 variation orders costing around R508.5 million.

Issues for consideration: DWA
The Committee should consider the following issues. The DWA should provide a clear plan to improve its expenditure trends. It should expedite its procurement process to remedy the slow spending for goods and services. It should expedite the filling of funded vacant positions as such vacancies affecting the expenditure on the compensation of employees. It should explain to the Committee how it intended addressing the over expenditure on the Administration programme without affecting other programmes. If it had already overspent in the third quarter, this raised the question of how it would sustain the other programmes for the next three months. The Department should tell the Committee whether it had put in place any measures to address irregular and fruitless expenditure and variation orders from contractors. These variation orders emanated from the lack of feasibility studies by the Department. They also emanated from poor terms of reference developed by the Department. However, variation orders might be caused not by negligence but by endogenous factors such as weather conditions. It should expedite implementation of the AGSA's recommendations and the AGSA's improvement action plan on these recommendations.

Department of Cooperative Governance (Vote 3)
The Chairperson said that the Committee's area of interest with CoGTA was just one. This was disaster management, in which CoGTA was spending poorly. There had been no improvement over two years. The  Community Work Programme (CWP) was the same. This programme was part of the Expanded Public Works Programme (EPWP). Most of the money in the CWP was spent on consultants rather than going to create regular work. Members should decide whether or not to hold a meeting with CoGTA on the third quarter or rather delay a meeting until the time of considering appropriations. He suggested fewer departments for the third quarter.  

The Chairperson said that he did not require the researchers to present this section of the report.

 
Discussions
The Chairperson thought that the Committee might invite the 40 partners of DWA. In terms of the graph, DWA spent about 60% in 2009/10. Since then, the DWA had declined on the third quarter. By this latest third quarter, it had spent less than 50%. The Committee had agreed in one of its strategic planning sessions that it must take some of the departmental quarterly reports to the House and debate them there, so that everyone could understand the issues. The challenge facing the Committee was that it was now April, and by the time the Committee held the hearings, it would be May, and already the first quarter would be almost over. He wanted Members to think about it. The researchers could bring the figures the next day after the end of the quarter, but these figures meant little without non-financial performance information. This was where the delay came – in gathering this non-financial information. Without the non-financial information the reporting process appeared to be taking long, since, according to the Public Finance Management Act (No. 1 of 1999), the departmental report should be ready in 30 days. The department concerned would be ready with the figures, but by themselves the figures had little meaning. The Committee really needed to find a way of getting around this delay in obtaining non-financial performance information.  

Ms R Mashigo (ANC) asked if the Committee had already invited the DWA.

The Chairperson replied that it had.

Ms Mashigo said that the DWA would present on its fourth quarter report and asked how the Committee would consolidate the third quarter report with the fourth.

Mr Swart agreed with and understood what Ms Mashigo was saying, but stated that the Committee should still stick to the third quarter, as the Committee was required to report to the National Assembly on the third quarter. It could not report on the fourth quarter and on what the department concerned had said had happened. It should concentrate on the third quarter and try to include non-financial performance information.   

The Chairperson said that colleagues were raising an important issue. However, the Committee's concern was above all with the third quarter in order to benchmark what the DWA had said. The third quarter report assisted the Committee to determine how much the department concerned had spent in nine months. If a department had spent only 50% by the end of the third quarter and then claimed to have spent nearly 100% by the end of the fourth quarter, the question had to be asked – how?

He felt that the Committee should discuss with the Public Service Commission (PSC) or the AGSA on how to work with the DWA to examine how, if a department such as the DWA at the end of December had spent only 49%, yet at the end of the year had spent 96%, the last quarter expenditure had been spent. Had this money really been spent on delivering services?  The PSC had compared the expenditure with the Annual Performance Plan (APP). In order for the Committee to recommend that the departmental budget must be approved, it must show that it had spent the previous year's budget. However, where was the DWA spending this money?

Ms Mashigo's issue was important. It was necessary to find out how this money was going to be spent. If Members thought that the Committee could have this report for itself, and then move to the fourth quarter report, it could have this report just for the purposes of comparison, it would still serve the same purpose. The Committee had not yet received the fourth quarter report from the National Treasury. The problem was the timing of the report. The Committee needed to be up to date with the situation, but was now working retrospectively, like the Standing Committee on Public Accounts (Scopa). Now it was April. The Committee would be meeting DWA five months after the end of the third quarter.       

Mr J Gelderblom (ANC) agreed. He wanted the Committee to meet the departments concerned not a month later than each quarterly report. Moreover, the Committee must make its views known to the National Treasury. He anticipated extra pressure on the Committee's researchers. It had to be asked how, over four years, the Committee had improved the performance of departments. 'We are too late with our recommendations.'   

The Chairperson felt, however, that sometimes the Committee was undermining the contribution that it had made in a number of areas. Nonetheless, challenges remained as with the departments mentioned in this particular expenditure analysis. In such departments, not only were there frequent changes of directors-general but also the ministers changed frequently. The unfortunate Mr Trevor Balzer, DWA Acting Director-General, found himself constantly in an acting position. 

The Chairperson pointed out that next year the Committee was to table a legacy report, in which, of course, the Committee researchers would be heavily involved.

This third quarter as a benchmark was important. This 'March spike' [rush of expenditure in the fourth quarter] indicated possible careless expenditure. The PSC and the AGSA could help the Committee to be sure what had happened to this money. The Committee should also liaise with the portfolio committees concerned.

The fourth quarter report could be 'very deceiving' as by the end of the fourth quarter a department would report that it had spent 100%. What was important was indications of the third quarter report.

Ms Mashigo believed that departments such as DWA did not listen to the Committee. It should therefore write its recommendations in strong terms, which based on recent performance, the Committee thought that certain future allocations to the DWA were hardly necessary. The Committee should express itself in such terms in the interests of a better life for all. 

Mr Swart could not agree more. He supported making an example of DWA by taking away from it allocations that were not critical to service delivery. Other departments would hear about it and be afraid in future.
The Chairperson said that the DWA needed the Committee. It was not too late to debate the matter in the House. He advised a moderate approach and noted that performance of the DPW had improved as a result of its taking note of the Standing Committee's recommendations. 

The Chairperson said that the current Minister of Public Works was upfront in admitting that there was a problem, and, to admit that there was a problem was the first step to resolving it. The Committee would not make an effective contribution if it just expressed frustration.

The meeting was adjourned.
 

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