Western Cape, North West and Northern Cape spending for 2012/13: Treasury & Financial & Fiscal Commission briefings

Meeting report

Chairperson’s opening remarks
The Chairperson said a huge task awaited the provinces to build the private sector and to create jobs. The task had become even more important as the South African economy had slowed down markedly during the first half of this year. The Committee should not be seen as “Big Brother”, but rather as an entity aiming to assist the provinces to use their allocated funds to ensure service delivery.

National Treasury report
Mr Edgar Sishi, Acting Chief Director, National Treasury, said his presentation was based on some key points identified in the expenditure outcomes for all of the provinces. The preliminary outcome amounted to 98.1% of the R402.6 bn adjusted provincial budgets. There had been an increase in expenditure of 7.2% (R26.7 bn) over the previous year. All the provinces had underspent their adjusted budgets by 1.9%, with North West (NW) at 4.9%, and Northern Cape (NC) at 4.7%, the main culprits. KwaZulu-Natal (KZN) had the largest budget, but had reflected the lowest under-spending.  The provinces had spent close to 100% in the social services sectors, with education at 98.7%, health at 99.3% and social development, 98.5%.  The compensation of employees (CoE) budgets had been underspent for the first time since the 2007/08 year.  More effective cost control measures had been achieved through tighter controls. This was reflected in improved outcomes in education and health. However, much still needed to be done.
Even though capital spending had improved from 88.3% to 92.2%, an improvement was still needed in this area. Of the R 7.6 bn of under-spending, R4.1 bn was in the area of conditional grant funding, which was a great concern. Health had emerged as the greatest risk area.  The Provincial and National Treasury, as well as Parliament, needed to work together to address this issue. Provincial Treasuries were scheduled to participate in the Financial Management Improvement Programme (FMIP), recently launched by National Treasury and the European Union to implement best practices, improve analytical capacity and enhance corporate governance practices in provincial departments.  Departments also needed to improve on target setting. This could be improved if departments and Chief Financial Officers (CFOs) worked with their Provincial Treasuries when setting their targets.

North West Provincial 2012/13 expenditure:  Provincial Treasury briefing
Mr Paul Sebego, MEC of Finance, NW, said four departments had over-spent, mainly due to critical positions that had had to be filled. He said under-spending occurred mainly as a result of litigation and poor planning.

Mr Israel Kunene, Head of Department, NW, said the province’s spending was at 95% of the approved adjusted budget of R26.9 bn -- an under-spending of R1.3 bn.  Under-spending had occurred mainly in the provincial departments of Public Works, Roads and Transport (R816 million) and Sport, Arts and Culture (R103 million). The quarterly spending trends by economic classification reflected that the highest spending was during the months of January, February and March. Departments had been encouraged to plan properly so as to improve on their spending during the year. The Provincial Legislature and the departments of Health, Education, Social Development and Agriculture had recorded over-expenditure on their CoE budgets. The over-expenditure on CoE was due to the decrease in personnel budgets, the promotion of personnel and the filling of unfunded posts.

Relating to conditional grants, the province recorded an expenditure of 87% of its adjusted budget of R5.2 bn, resulting in an under-expenditure of R683 million. The low spending on the conditional grants could result in funds being lost to the National Revenue Fund or to other provinces, should the rollovers not be approved. An amount of R233 000 under the Mass Sport and Recreation Grant had already been re-allocated to another province.
The under expenditure at the Provincial Department of Public Works had resulted from their grant having been changed to allow them only to maintain, and not to build, infrastructure. In general, various reasons for under-spending were given.  Some departments were without key personnel, which had negatively influenced their spending patterns. There was a lack of capacity, skills and strategies to implement and deliver infrastructure and conditional grant projects. Supply chain management problems impeded tenders being advertised, adjudicated and awarded timeously. Service providers were not paid within the stipulated 30-day period because of poor monitoring of invoices. The lack of financial skills and awareness of government policies and prescripts among staff had impeded financial resource management across departments.

In an attempt to deal with the challenges that impeded proper facilitation, planning, monitoring and implementation of the 2012/13 budget, Provincial Treasury had established the Provincial Budget Forum to share challenges and identify best practices to improve government spending. Another intervention earmarked was to improve the credibility of the Medium Term Fiscal Framework and the scope of practical economic impact analysis, coupled with refined expenditure management. The Provincial Treasury had also planned to conduct quarterly meetings with departments to discuss the management and compensation of employees, the recruitment of staff without sufficient funds in the budget, and to encourage the appointment of skilled staff to improve planning and financial skills.

Northern Cape Provincial 2012/13 expenditure:  Provincial Treasury briefing
Mr John Block, Finance MEC, NC, said the Provincial Treasury had identified under-spending in the areas of health and education as their biggest challenges. The Provincial Treasury had plans in place to deal with this under-spending and would inform the Committee of its progress in this regard at their next meeting.

Mr Sello Mokoko, Head of Department, NC Provincial Treasury, said the province over-collected its adjusted own revenue budget as at the end of March 2013 by a net amount of R35 million, mainly as a result of interest generated by Provincial Treasury, amounting to R28 million, and motor vehicle licenses over-collected in the Department of Transport, Safety and Liaison, amounting to R11 million. He stressed that Provincial Treasury’s focus was not on investing money, but on service delivery.

Expenditure on conditional grants had amounted to 87% of the total adjusted budget of R3 bn. Total provincial expenditure by all departments had amounted to 95% of the total adjusted provincial budget of R12 bn. The Department of Agriculture, Land Reform and Rural Development had recorded the biggest under-spending, with R284.7 million of the R500.7 million conditional grant budget not spent, mainly due to the delay in the assessment of the damage caused during the floods in the province. The Department had now appointed Nieuwoudtville Rooibos Pty Ltd as a lead consultant for the implementation of the project. An agreement had been reached between National Treasury, Provincial Treasury and the national and provincial Departments of Agriculture to reschedule this allocation beyond the MTEF period, to allow the provincial department time to spend the allocated money.

The Department of Education had under-spent by R59 million. The under-spending was as due to a delay in the implementation of projects and a lack of planning with regard to three new schools.  A roll-over had been requested in this regard. The Department of Health had under-spent on the Comprehensive HIV/Aids Grant by an amount of R20 million and had spent only 16% of the R6 million allocated to the Nursing College Grant. The under-spending was due to poor planning in the appointment of people and a changed system of compensation. The Department of Sport, Art and Culture had received an additional amount of R2.6 million for the Mass Sport Participation Grant. This amount was made available only towards the end of March 2013. The aggregate provincial under-spending by all departments amounted to R560.1 million, and conditional grants accounted for a net of R405 million.

He said the budget under economic classification had stabilized, as the Provincial Treasury had implemented a biometrics system to curb fraud. It was used to conduct head counts in departments to eliminate “ghost employees”. The money saved here had now been allocated for service delivery and the employment of teachers.

Western Cape Provincial 2012/13 expenditure:  Provincial Treasury briefing
Mr Alan Winde, Finance MEC, WC, said the province’s preliminary spending had amounted to 99% of the adjusted budget of R40.3 bn. A second adjustment budget had been appropriated to account for the Devolution of Property Rates Grant and the Mass Participation and Sports Development Conditional Grant.  Provincial departments had reflected a total under-spending of R319 million, with the Department of Health recording the biggest under-spending of R151 million, followed by the Department of Education at R87 million and the Department of Transport and Public Works, at R50 million. All votes were within the under spending norm of 2%, with the exception of the Provincial Parliament, which reflected under spending of 4%. Of the total under-spending, R305 million was reflected under compensation of employees, R106 million under goods and services, and R182 under capital, while total transfers and subsidies reflected an over-expenditure of R264 million (education transfers to schools). Infrastructure spending was at 96%, against the adjusted budget of R3.9 bn.  Education spent 95%, Health 92% and Roads and Transport 103% of their budgets. The spending on conditional grants amounted to 99% of the total national allocation of almost R9 bn.

Discussion
The Chairperson referred to the recent sea disasters that had taken place in the Northern Cape, when vessels had landed up on the rocks. He said the province should make allocations for such disasters in its budget.

Mr R Lees (DA, KwaZulu-Natal), questioned the accuracy of the projections.

Mr S Montsitsi (ANC, Gauteng), expressed concern over the expenditure trends among the departments in the NC. He asked whether this was the norm for the province. What advice could National Treasury offer?

Mr B Mashile (ANC, Mpumalanga), asked what the reasons were for the March spikes in expenditure in the provinces?  How authentic was the data in the reports, given the low skill levels and high vacancy rates within the departments.

Mr Sishi replied that there probably were instances of fiscal dumping by departments that were rushed to spend their budgets before the end of the financial year. He attributed the March spikes in spending to poor planning by departments. The quality of some of the financial work by departmental chief financial officers (CFOs) was questionable. Their deficiencies could lead to poor planning, which could lead to bad decisions, such as fiscal dumping. He proposed that a process be put in place to diagnose and address the skills of CFOs.

Mr Mashile asked what a healthy cash balance for a province should be.

Mr Sishi replied that he did not have a guideline for an acceptable cash balance. The reason was that provinces differed, never remained the same and had different problems to deal with.

Mr Mashile asked whether all provincial treasuries’ staff would be participating in the Financial Management Improvement Programme.

Mr Shishi said the programme was designed to accommodate all levels of staff. Everyone involved in any particular area would be addressed.

Mr M Makhubela (COPE, Limpopo) asked what had contributed to the revenue over-collection in the NC.

Mr Mokoko replied that the increased population in the NC had been responsible, as more people now bought new cars, especially the black middle-class.

Mr Lees congratulated the NC Provincial Treasury on putting together a “very comprehensive” report. Referring to the movement of unspent conditional grant funds from one project to another (Slide 9), he asked how these movements of funds were dealt with.

Mr Mokoko replied that this movement of funds had resulted from a change of plans, which illustrated the lack of planning in departments.

Mr Lees asked what the consequences were for over-spending in the NC.

Mr Mokoko replied that he was in favour of disciplinary action against those who developed projections that departments were not able to do justice to.

Mr Joseph said departments in the NC should not have to “head count” staff in order to eliminate ghost workers. It should use its programmes and data bases to do this.

Mr Mokoko replied that head counts were only done in certain departments, where there was uncertainty whether certain people actually worked there.

Mr Joseph asked NC when the provincial budgets were approved, and when the planning started.

Mr Mokoko replied that the Provincial Treasury started their planning in advance, but that they were tripped up by departments that could not plan properly. These departments were the weakest link in the way in which the Provincial Treasury did things.

Mr T Chaane (ANC, North West) asked why there was such a rush by departments to spend from January to March. Was there value for money in spending during this period?

Mr Mokoko replied that there was no value for money during this rush.

Mr Chaane said under-expenditure seemed to suggest that service delivery had not taken place.  

Mr Montsitsi said the under-spending in the province, and the resultant lack of service delivery, was not doing justice to the people of the area.

Mr Mashile asked if the provisions for conditional grants were done on a three-year cycl,e then why did departments still struggle to put spending plans in place?

Mr Mokoko replied that departments should have started planning in advance, but were unable to plan properly. This, in turn, meant that their budgets were not used effectively.

Mr Mashile asked whether ghost workers were the only anomalies found in NC departments.

Mr Mokoko replied that other anomalies had to be seen to by the accounting officers within departments.

Mr Makhubela asked what other factors had led to under-spending in the WC. What actions had been taken against departments that under-spent?

Mr Winde said that in the case of the housing department, there were planning problems which had led to under-expenditure. If they could see that a department was going to have trouble meeting its targets, then they start interacting with them. If the department was unable to give adequate reasons, then they started putting pressure on them.

Mr Mashile asked why the WC was so economical with its presentation. It was very difficult to interact with the report.

Mr Winde replied that the Provincial Treasury had a more in-depth 61-page document available.

Mr Mashile asked the WC delegation why subsidies and transfers had become expenditure amounts in their report.

Ms Julinda Gantana, Chief Director, Provincial Treasury, replied that subsidies and transfers had been erroneously classified in the presentation as expenditure. She apologized.

Mr Mashile asked WC whether the 99% expenditure achieved on conditional grants were an exercise in financial discipline, or had there been real value for money on the ground. If expenditure was that exceptional, then why were there still protests in the province?

Mr Winde said he agreed that money could not be transferred without making sure that a service had been rendered and good value for money had been achieved. The WC Provincial Treasury had made sure that value for money had been achieved by monitoring projects closely and by making full disclosure on expenditure to parliament on a quarterly basis, so that they could see whether they met their targets.
The Provincial Treasury took protest action very seriously, because that was where the pressure points were. It made sure that service delivery plans were included in the plans of municipalities, as high expenditure took place.

The Chairperson’s closing remarks
The Chairperson predicted that planning and management would also be a big issue with other provincial treasuries. That was why the meeting the Committee would have with the Minister of Monitoring and Evaluation to discuss the planning issue in the provinces, would assist the Committee to take the matter a step further and do things differently. Though the heads of departments were held accountable for planning, the whole management component should assist them.  The Committee was obligated to leave a legacy of a monitoring tool that would make life easier for the next Committee that would come in after 2014.

The meeting was adjourned.