National Treasury noted that Gauteng and Mpumalanga were amongst the nine provinces in the country which had under spent their adjusted budgets by R7.6 billion and their conditional grant funding by R4.1 billion. The provinces applied for a rollover of these funds which could have serious implications for future conditional grant allocations. Health outcomes in the Gauteng province improved from an over-expenditure of 1.8% in 2011/12 to an under-expenditure of 0.8% in 2012/13. In Mpumalanga, the Department of Health under spent on infrastructure and struggled to budget for goods and services and experienced budget overruns. Target setting was a huge problem in departments.
Mpumalanga Provincial Treasury shared the same concerns as expressed by National Treasury and was working on finding a solution. There was also concern over the Departments of Agriculture and Human Settlements under spending on their budgets. The Provincial Department of Education presented the biggest challenge as it had overspent its entire budget. An allocation was arranged through the Finance Bill to clear R350 million in accruals in this department. The slow progress of infrastructure projects under the Hospital Revitalisation Grant was a main contributor to the under-expenditure experienced in the Department of Health. With regards to conditional grants, the Mass Participation and Sport Development Grant was stopped due to delays in the appointment of sport coordinators and an amount of R105.992 million in unspent grants had been forfeited to the National Revenue Fund. There was an expenditure rush during the month of March, which Provincial Treasury had begun to investigate.
Gauteng Provincial Treasury was concerned that Compensation of Employees spending had spiked above 60%. Own revenue collections by the province amounted to R3.95 billion. Without this own revenue the province would have overspent. Provincial Treasury received requests for rollovers from provincial departments amounting to R500 million. Almost all provincial departments recorded under spending, which could be attributed to commitments and invoices that were not processed. Under goods and services the province overspent by R528 million, mainly due to funding pressures in education and health. Conditional grant spending was recorded at 93%, with major under spending recorded in the Departments of Health, Education and Transport. The Provincial Department of Sport, Arts, Culture and Recreation overspent, largely because of having been denied their budget allocation. Provincial Treasury was due to conduct analysis on the performance of grants so as to improve grant performance during the course of the 2013/14 year.
The members were particularly concerned over the under-expenditure that had taken place in the two provinces and wanted to know what the respective Provincial Treasuries were doing about it. They questioned the amount of money spent on Compensation of Employees and wanted to know what cost-cutting measures were put in place. The issue of hospitals not collecting revenue was also a concern for the Committee, as well as the underperformance of the conditional grants hospitals were responsible for. Why had the National Health Insurance Grant been under spending in Gauteng? Why had invoices to suppliers not been paid within 30 days?
The Financial and Fiscal Commission raised concern about the state of the personnel budgets over the last three years. What was the wage bill buying? There was concern in the Commission over the under spending on grant allocations. Accruals and budget forecasting were other concerns.
The Chairperson said that what came out of the Committee meeting was the need to adequately deal with issues such as budget planning, poor monitoring, cash flow management, credibility of information and the need for quarterly reports.
Chairperson’s opening remarks
The Chairperson said the Committee had a duty to monitor action plans presented to parliament so as to avoid a repeat of the reckless spending that forced government to intervene in five departments in Limpopo. That was why the Committee had to fulfill its mandate of engaging with provincial treasuries on its spending practices in the provinces.
National Treasury report on Gauteng & Mpumalanga Provincial Spending: as at 31 March 2013
Mr Edgar Sishi, Acting Chief Director, National Treasury, said Gauteng and Mpumalanga were part of the nine provinces in the country that had under spent their adjusted budgets by R7.6 billion. Of the total under spending, R4.1 billion was in the area of conditional grant funding. The provinces applied for a rollover of these funds and this could have serious implications for future conditional grant allocations. Education outcomes reflected noticeable improvements, however, much still needed to be done in terms of personnel. Problems with learner-teacher support materials (LTSM) distribution have been experienced, but have since been secured. Health, in the areas of infrastructure, salaries and goods and services, was identified as the biggest concern.
He welcomed the under-expenditure in the Gauteng Departments of Health and Education and said it was a turnaround from the many years of overrun budgets. Health outcomes in the province improved from an over-expenditure of 1.8% in 2011/12 to an under-expenditure of 0.8% in 2012/13. The province improved its spending on Compensation of Employees (CoE) budgets. The budgeting and spending on goods and services were still poor. Lingering problems with conditional grants were still affecting expenditure.
In Mpumalanga, the Department of Health under spent on infrastructure as the Rob Ferreira project continued to experience setbacks. The Department struggled to budget for goods and services and experienced budget overruns. Target setting was identified as a problem in the province.
Mpumalanga Provincial Treasury
Mr Madala Masuku, Member of the Executive Council (MEC) of Finance, Mpumalanga, said he shared the same concerns as expressed by National Treasury and was working on finding a solution. He was also worried about the Agriculture and Human Settlements departments’ under spending on its budgets. The issue of accruals was also identified as a concern.
Ms Nombedesho Nkamba, Head of Department: Finance, Mpumalanga, said the Provincial Department of Education presented the biggest challenge as it had overspent its entire budget. The department was assisted with an allocation through the Finance Bill to clear R350 million in accruals. The Provincial Treasury had explained the overspending to the Auditor-General. The Provincial Department of Health spent 98% of its allocated funds, with the slow progress of infrastructure projects under the Hospital Revitalisation Grant a main contributor to the under-expenditure. Another contributing factor was the slow process of appointing personnel. Conditional grant funding of R189 265 million was not spent. The Mass Participation and Sport Development Grant was stopped due to delays in the appointment of sport coordinators. An amount of R105.992 million in unspent grants had been forfeited to the National Revenue Fund. Overall, the province under spent 0.7% of its budget.
Expenditure during the month of March exceeded all other months in the financial year. The so-called March Spike phenomenon was caused by desperation among provincial department to reach a 100% spending level. Provincial Treasury had begun to analyse transactions incurred in March to determine the nature and validity of these transactions. Preliminary findings revealed that some departments had procured a lot of furniture and minor assets to defray possible under spending.
Provincial Treasury had instituted a number of initiatives to assist the departments in the province. These initiatives included the formation of a work group to help departments with capacity building, interaction with the Auditor-General and other stakeholders, budget matters, supply chain problems, March spikes and accrual and litigation issues.
Gauteng Provincial Treasury
Mr Mandla Nkomfe, Finance MEC, Gauteng, said he was concerned about the CoE spending being above 60% margin. He would follow up once the guilty departments have been identified. He also expressed his shock at the performance of the provincial Department of Human Settlements and said that it needed to be investigated. Over the last two years Provincial Treasury had focused its attention on the Provincial Department of Health which had invoked the Public Finance Management Act (PMFA) of good governance, financial management and achieving value for money.
Ms Nomfundo Tshabalala, Head of Department: Finance, Gauteng, said a total of R74.8 billion was received by the province at year end and was adjusted by R5.4 billion. Own revenue collections by the province amounted to R3.95 billion. The preliminary outcome of provincial departments was at R71.7 billion against national transfers. Without this own revenue the province would have overspent. An amount of R582 000 for the Mass Sport and Recreation Grant was not transferred to the Provincial Department of Sport, Arts, Culture and Recreation due to their internal challenges. The province under spent by R925 million. Provincial Treasury had received requests for rollovers from provincial departments amounting to R500 million. Almost all provincial departments showed under spending, which could be attributed to commitments and invoices that were not processed. Under goods and services the province overspent by R528 million, mainly due to funding pressures in education and health. The province’s infrastructure expenditure was recorded at 96%. Education overspent on its infrastructure budget by building more schools in a shorter time frame.
Conditional grant spending was recorded at 93%, with major under spending recorded in the Departments of Health, Education and Transport. The Provincial Department of Sport, Arts, Culture and Recreation overspent, largely because of having been denied their budget allocation. Provincial Treasury would conduct analyses on the performance of grants to improve grant performance during the course of the 2013/14 year.
Mr Makhubela (COPE, Limpopo) asked whether the workshops held in Mpumalanga were a success.
Ms Nkamba said the workshops were a success as exams were held and thus value for money was achieved.
Mr Makhubela asked Mpumalanga what they needed to do to satisfy National Treasury to grant it a rollover.
Ms Nkamba replied that Provincial Treasury had to provide proof such as photos of work being done and what the money would be spent on.
Mr Makhubela asked what the challenges were under the economic classification category.
Mr Masuku replied that the challenge under this category was in human settlements. Provincial Treasury had gone back to check on all projects to see whether the money had been spent or the houses built. From this year every tender had to be placed in the tender bulletin so that it can be traced and verified.
Mr Makhubela asked Gauteng Treasury why invoices to suppliers were not paid within 30 days.
Ms Tshabalala replied that most of the invoices had been paid but the Department of Health was not complying.
Mr Makhubela said the Gauteng province registered the largest population in the country. How would the Provincial Department of Housing ensure decent housing for all?
Mr Nkomfe replied that wherever there was migration there would be a need for houses and even though the province had exceeded its targets, delivery still remained a problem. It needed to be addressed as a nation, at intergovernmental level.
Mr Makhubela wanted to know which programmes run by the Department of Health in Gauteng were under spending. How was Provincial Treasury assisting the Department?
Ms Tshabalala replied that it was under administration where spending suffered. The money was used in other programmes. There was also a delay in payment under health for goods received. Provincial Treasury had been looking at the Department’s value chain for blockages. There have also been over commitments in the health department and action needed to be taken against Chief Executive Officers (CEOs).
Mr R Lees (DA, KwaZulu-Natal), asked National Treasury how much employee numbers were reduced in the provinces.
Ms Nkamba replied that head count numbers needed to be addressed, but that the people employed in education were necessary so as to sort out the learner/teacher ratio.
Mr Lees was concerned about the cost of the employee bill in Mpumalanga as they have more numbers than the other provinces. What analyses had been done about dead wood? How could ‘dead wood’ be identified? What action had been taken?
Mr Masuku replied that a committee followed up on the salaries paid to employees. Provincial Treasury also needed to standardise its organogram so that the 7% increase mark that had been set would not be breached.
Mr Lees asked whether the severe problems with hospitals not collecting revenue had been sorted out.
Ms Tshabalala replied that the debt for the current year had been collected, but old debt had still not been recovered.
Mr Lees asked what Gauteng implied with preliminary and adjusted appropriation. What was the actual figure for the year?
Ms Tshabalala replied that the actual expenditure figure was the amount spent outside of the adjusted budget. She said the manner in which the Provincial Treasury presented their tables needed to be simplified.
Mr Lees asked whether Gauteng made use of agencies. How much were transferred to agencies?
Ms Tshabalala replied that agencies were used as listed under the PMFA. Monies that were transferred were monitored and audited.
Mr S Montsitshi (ANC, Gauteng), asked the Gauteng MEC why the money under the Hospital Revitalisation Grant was not spent as he said that health was doing well and that there was a turnaround strategy in place.
Mr Nkomfe replied that the Department of Health was suffering. The Minister of Finance and the Department of Health have been working on sorting out problematic issues. In the hospitals, accounting officers have also started to take responsibility. Auditing hospitals have also been considered.
Mr Montsitshi said that Gauteng had huge potential for revenue collection. What mechanisms have been put in place for revenue collection at the hospitals?
Ms Tshabalala replied that the challenge the Provincial Treasury faced was to improve billing systems at hospitals.
Mr Montsitshi asked why the National Health Insurance Grant had been under spending in Gauteng.
Ms Tshabalala said under spending had occurred because of a delay in appointing case managers and procurement delays at nursing colleges.
Mr Montsitshi wanted to know why the Provincial Road Maintenance Grant was not performing. He hoped service delivery had not been sacrificed for the sake of saving money on the grant.
Mr Nkomfe replied that the Provincial Road Maintenance Grant was an issue because of the levels of litigations holding it back.
Comment by Financial and Fiscal Commission
Mr Bongani Khumalo, Acting Chairperson, Financial and Fiscal Commission, raised concern about the state of the personnel budgets over the last three years. He said it was important to know what the wage bill was buying. There was concern in the Commission over the under spending on grant allocations. No one could tell him why they were under spending on grants. Accruals and budget forecasting were other concerns he raised. He wanted to know what incentives should be put in place to help curb under spending and to raise the credibility of budgets.
The Chairperson’s closing remarks
The Chairperson said that these meetings were valuable in that it monitored taxpayers’ money. He said what came out of this Committee meeting was the need to adequately deal with issues such as budget planning, poor monitoring, cash flow management, credibility of information and the need for quarterly reports.
The meeting was adjourned.
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