Provincial Expenditure 3rd quarter 2013/14: Eastern Cape, North West & Northern Cape Provincial Treasury briefings

Meeting report

Provincial Expenditure generally in 3^rd quarter 2013/14: National Treasury briefing
Mr Edgar Sishi, Chief Director: Provincial Budget Analysis, National Treasury, stated that the numbers in the adjustments to the main budgets 2013/14 were published on the National Treasury (NT) website and were made available generally to the public. He noted that from 2013 NT had developed an analytical press release, which presented a media analysis on the problems of provincial budgets and expenditure. This awaited signature from the Director-General. During November of each year, the Minister dealt with provinces applying for the adjustment of budgets. He stated that many adjustments were precipitated by additional allocations made by national government, some were for roll-overs, and others were for adjustments made by provinces themselves. The total adjustment to the budget was R11 543 817 billion, but the percentage adjustment overall was not very large, with the exception of the North West, which had tabled an adjustment budget for 2013/14 of R1 533 746 billion, or 5% of the total budget. The reasons were canvassed with North West, as generally speaking, the main appropriations should remain as close to the original figures as possible.

Mr Sishi tabled the figures for the adjustment budget and the actual payments per quarter, noting that at end December 2013, payments were in the region of 73.1% and it was projected, by the majority of the provinces, that they would overspend the budget in the current financial year. Limpopo was struggling to increase spending, while the North West and Northern Cape had spent their budgets faster. National Treasury did not view the projections by provinces as reliable, pointing out that last year the spending was only 0.2% less spending than this year as at end December, yet provinces ended up by the end of the financial year by underspending by R7.5 billion. He said it was thus likely that they would under-spend in this year also. National Treasury has engaged with provinces, as figures were unreliable during the month of January, and would work to fix this issue.

Provinces mainly spent money on the provision of goods and services, such as medicine, contractors, property payments (electricity and water facilities), medical supplies, agency support services (nursing agencies used for after hour care in hospitals) and Learner-Teacher Support Material (LTSM). Most provincial expenses were dominated by items related to the provision of healthcare. A major question in this year was whether provinces were controlling personnel costs, as this had been a problem in the past. He pointed out that because social services recruitments tended to be seasonal, it was more useful to compare calendar, rather than financial years. From December 2009 to December 2013, provincial staff numbers grew from 875 731 to 931 471. However, in the calendar year of 2013, there had been a significant reversal in staffing trends and in December 2013 staff numbers were at 919 741. Generally, provinces were reducing staff numbers. Most declines in staffing occurred in the Eastern Cape, Kwazulu-Natal and Limpopo.

Mr Sishi then moved to a table illustrating unit costs, the amount of money paid per person per month, and, since the education sector dominated budget spending in provinces, a sample was taken in respect of  education. Across the first to third quarters, there had been significant and continuing increases in salary costs per person in the Departments of Education. In Limpopo it was discovered that Heads of Departments approved bonuses and various other allowances to staff, causing the costs to increase, but a question that had to be asked was whether there was any increased performance or productively matching the high staffing costs.

Mr Sishi looked at the In terms of quarterly spending growth on non-core items such as administrative fees, advertising, catering and travelling, indicating that more money was spent on catering and travelling. Catering growth in the first two quarters was almost 100%, but declined into the third quarter, although not across all provinces, especially Limpopo. In this area, it was projected that provinces would spend more in the last three months of the year.

Specific interventions highlighted by provinces included implementation of cost-containment measures in line with the Medium Term Budget Policy Statement (MTBPS). Headcount verifications and biometric controls were rolled out to various provinces, to fix the Cost of Employment spending and budgeting. The Eastern Cape and Kwazulu-Natal was currently doing headcount verifications and Northern Cape had completed and implemented biometric controls. Strategic procurement approaches would have a significant influence on future spending on goods and services.

Eastern Cape issues
Mr Sishi said this province spent R44.1 billion (or 71.8%) of its adjustment budget as at 31 December 2013. The province projected to under-spend by R436.2 million (or 0.7%) of its 2013/14 adjusted budget, with the bulk located in Human Settlements, where delivery performance was sub-standard. Housing construction showed the worst under-spending levels. Cost of employment (COE) was projected to overspend by R65.4 million (or 0.2%), mainly in education, due to teaching staff challenges. Mr Sishi stated that the problems in the education system were not financial but management. In goods and services there was projected under spending by R226.9 million of the adjusted budget, with most ascribed to education, because of under-spend on the LTSM in the public schools. The budget was not moved from there to text books and furniture. Eastern Cape, together with NT and the National Department of Health, had discussed the need to complete hospital projects such as Cecilia Makiwane. Proper planning and budgeting was necessary.

Northern Cape issues
This province projected to overspend an amount of R77.423 million, or 0.6%, at the end of financial year, but NT doubted whether this would in fact happen. Budget pressures in the Provincial Departments of Education and Health related to the filling of unfunded posts, many in the administration programme. Once again, this was illustrative of poor management in departments. The main priority should be to address recruitment services in the health sector, and there were concerns around spending on what should be regarded as non-negotiable services, such as medicines, medical supplies and food, especially in the Kimberley hospital. NT would be monitoring whether too much money was spent on salaries rather than medical supplies. Public entities were not rationalised in number and functions - for example the Northern Cape Economic Development Agencies carried out the same function as the Department of Economic Development, and it was recommended, in this specific case, that the Department of Economic Development should improve its monitoring and oversight over these public entities, which were poor and unstructured. The province must generate its own funding through engaging private and corporate funders.
 
North West issues
Mr Sishi said that North West was projected to overspend its budget, mainly due to problems in the provincial Department of Health, resulting in other departments needing to scale back to bail out the health sector. The provincial Department of Health had filled posts, despite the funding pressures, and the projected spending was R8 420 816 billion, an overspending by 2.7%. NT expected the province overall to underspend, so this projection was causing problems. The non-social sector departments had spent 65% of their budgets in the third quarter, with underspending expected. The provincial Department of Public Works, as an implementing agent, was ineffective and characterised by poor performance of contractors and delays in implementing central infrastructure projects. Oversight and monitoring of public entities should improve. Provincial problem were largely related to management and how departments were run, and were not linked to financial difficulties.

Performance Information on provinces
NT said it was battling with Mpumalanga to get information on how many learners benefited from the scholar transport system. In the area of Human Settlements, the Eastern Cape had not met housing targets, as illustrated by a projection, for the third quarter, of 7400 housing units, as against 2 879 delivered. It was observed that Kwazulu-Natal exceeded the planned targets.

Discussion
The Chairperson thanked Mr Sishi for his presentation and asked what was his timeframe and target date for the headcount to be completed for all provinces. He asserted that management problems in provinces needed to be improved, as tax payers’ money was at stake.

Mr B Mashile (Mpumalanga, ANC) stated the figures that were used should be reliable, yet Mr Sishi said information obtained from provinces was not reliable. He asked what the Committee could derive from the tables if this was indeed the case. He asked how NT and provincial treasuries ensured that the figures they received from provinces made sense. He wanted to know more about what the provincial treasuries were doing, in what provinces headcounts had been done, and what differences they showed. He also asked what was the total expenditure for employees before headcount, and after the headcount, how the figures had changed, and whether this could be included in the performance section of the presentation so a follow up could be done.

Mr Sishi stated that a report concerning headcount data would be provided to the Committee.

Mr Sishi stated that the NT visited provinces and engaged with various accounting officers on why figures provided looked the way they did. NT also did its own assessment and projections. The provinces were more equipped, however, to highlight the problems they experienced. The headcount was being carried out haphazardly, because in the provinces where there was not capacity to do headcounts, NT was reliant on Statistics South Africa, who had to go through the provinces one at a time. When reports became available, there should be action taken immediately to address the problems, without waiting for the composite reports, and provinces should respond to ensure that its systems were corrected, that people would be paid the right amounts and would be posted to the right places.

Mr Mashile asked what reason Mpumalanga had given for failing to submit scholar transport information, and whether the explanation was plausible. He thought that the fact that the Department of Education did not provide the data and functions for the Department of Public Works should not be used as an excuse by the latter, who should comment itself on the issues, and NT should have engaged with it.

Mr Sishi stated that the Department of Education was responsible for its learners, and even though the Department of Public Works was responsible for transport the Department of Education should have the figures available for the numbers of learners transported. He said that North West Provincial Treasury had said that the Department of Public Works had undertaken an assessment of the scholar transport, to normalise contractual obligations. It was expecting to make savings that could be used in other areas. If there were problems between Departments of Education and Public Works, then Provincial Treasury would intervene.

Mr Sishi agreed that NT was unhappy with the unreliable projections provided by the provinces. The overall spending to date was reliably conveyed and could easily be verified, but projections remained a problem. NT would in future develop different ways in which projections could be assessed, but for this year, its own assessments indicated that provinces would underspend by R6.5 to R7 billion. Those managing budgets in department should improve their projections, which were important for management and to allow business to function. Provincial departments should take ownership for their projects and ensure the figures were correct.

The Chairperson stated that Mpumalanga would appear before the Committee next week on Tuesday.

Mr T Chaane (North West, ANC) wanted clarity on the decline of personnel numbers, and how provinces were managed.
 
Mr R Lees (Kwazulu-Natal, DA) asked whether there had been an analysis of vacancies and where they were seen. He wondered if they related to teacher posts, pointing out that the country could not afford to leave the posts vacant. He was concerned about the cost of compensation per staff member, particularly in the Western Cape, where the figures declined in the first quarter and increased in the third quarter, and he asked why. The Free State showed a similar trend, but other provinces did not have a similar dramatic drop, which seemed to indicate either that the figures were incorrect, or they were doing something right. He  asked if the property payments only related to water and electricity, or property rent as well.
 
Mr Sishi commented, following up on the questions of both Mr Chaane and Mr Lees, that if there was decision and support at the executive level, the problems were manageable. The Department of Education in the Free State had 2 600 resignation and terminations, which cost hundreds of millions of rands. This Department had chosen to fill all vacant posts, leading to overspending. He stressed that when employees left their posts, it was necessary to think carefully if they needed to be replaced, particularly for administrative posts.. In Limpopo, for example, the administrative posts far outweighed teachers in schools or medical personnel in clinics.

He said, in relation to compensation cost per staff member, in Free State and the Western Cape, that there were a number of reasons for fluctuations across the quarters, including salary allowances, bonuses, pay progression, various once-off payments and salary increases, but the degree of fluctuation still had to be analysed. He would submit data to the Committee when it became available. He noted that government rental buildings were not subject to property payments. In Eastern Cape and Limpopo a large amount was being spent on leasing buildings, sometimes at substantial cost.

Mr D Joseph (Western Cape, DA) asked whether the Committee could get a breakdown of provincial spending on the compensation of employees, to see which provinces monitored the balance between staff productivity and essential services. He cited concerns that if staff costs rose too sharply, less would be available for service delivery on the ground.

Mr Sishi stated that a table would be provided of which provinces were monitoring the balance between staff cost and service delivery funds.

The Chairperson asked that this data should be supplied to the Committee by Thursday 17:00.

The Chairperson stated that there should be clarity when referring to hospitals in the Northern Cape, as there was a Kimberley Provincial Hospital in Bushbuckridge, and a Mental Health Facility.

The Chairperson stated that the manner in which the headcount was done had an impact on the budget, and as soon as the headcount was done it was possible to determine what funds should be allocated. The Committee would develop its report on this issue.

Mr Sishi stated that much capacity building for managers took place through the office of the Accountant General. NT had its own budget analysis and budget management courses. However, management problems could not simply be fixed by capacity building, for it was even more important to ensure that, in recruitment, the right and correctly skilled persons were selected to do the job. Capacity building could not fix  bad recruitment in government. In addition, he noted that performance management in government departments, by supervisors and managers, was not being properly done, and again this would not be solve by capacity building. NT appealed to the Executive authority and departmental managers to pay more attention to recruitment. In the health and education sectors, where compensation of employees accounted 70% to 80% of the budget, the departments simply could not afford to hire sub-standard individuals, which would affect them for years.

The Chairperson thanked Mr Sishi and stated that after an intensive school day the school manager/principal must submit a report to the provincial Department of Education.

The Chairperson asked how many learners received food through the School food schemes, noting that he had visited 12 out the 15 schools in his jurisdiction in Northern Cape, discovering that some of the schools did not have food. He had reported the names of the schools and principals to the MEC. Education was a priority, and that was why vigilance was required.

Mr Mashile referred to the problem of scholar transport in Mpumalanga. He noted that NT had written to the provinces, and asked if NT was being assisted by provincial treasuries also, particularly in Mpumalanga.

Mr Sishi stated that both NT and relevant provincial treasury were struggling to get the Department of Education and Public Works to cooperate with each other.

The Chairperson stated that the National Council of Provinces (NCOP) had a provincial mandate to ensure that work was being done.

Eastern Cape Provincial Treasury briefing
The representative from the Eastern Cape Provincial Treasury noted that over-collection on own receipts amounted to R181 982 million and was mainly due to:
- the over collection of interest, which amounted to R108 165 million, by Provincial Planning and Treasury, due to the slow spending trends by departments
- over collection not budgeted for, in the amount of R10 628 million, by the Department of Roads and Public Works, received from the sale of old machinery
- over-collection in the Department of Health, against the projection of R10 493 million, for the use of public health facilities by doctors
- an improvement in the collection of patient fees, particularly those for awaiting-trial prisoners.

The Eastern Cape Provincial Treasury expected that the Department of Basic Education would overspend its budget by R3 million. Its adjusted budget for 2013/14 was R27 538 880 billion, and it was likely to spend  27 538 883 billion. In the Department of Social Development, actual spending at end December was R12 062 450, so it was projected that it would spend R17 062 410 against an adjusted budget of R17 183 547 billion, by the end of the financial year, showing underspending of R121 137 million.

Overall, this province had spent R44 095 billion, or 71.8% of its adjusted budget of R61 375 billion, and there was a projection that it would under-spend overall in the financial year by R435 810 million. A number of departments contributed to under spending – Departments of Human Settlements, Health, Local Government and Traditional Affairs, Roads and Public Works, Sport, Recreation, and Arts and Culture. Human Settlements would underspend by R149 695 million, due to poor performance of contractors. The main problems here were cash flow problems that prevented projects finishing on time, generally poor planning, poor project implementation and poor management in that Department. The Department of Health projected to underspend by R121 137 million, due to delays in filling vacant posts, appointing clinical specialists, and capturing on PERSAL, as well as delays in paying in various categories. The Departments of  Health and of Public Works had a tendency to “load” much of their budget in the last three months of the year, which might make the projected under-spending higher still.

The Provincial Treasury said that there was not yet any certainty as to why provinces always spent more in the last few months of the year.

The representative continued that there was already overspending in the Department of Education at R236 910 million, due to compensation of employees and accrual payments, for temporary educators, substitute educators and promotional posts. It was projected that there would be overspending in goods and services by R230 088 million. Underspending of R131 231 million was apparent on goods and services, due to delays in the procurement of school furniture.

The representative described the conditional grants performance for the year. The main contributors included the Human Settlements Development Grants, where there was a projected underspending of R150 655 million, due to poor performance of contractors and poor project management. The Technical Secondary Schools Recapitalisation Grant, Comprehensive Agricultural Support Grant and Dinaledi School Grant spending were all significantly low, despite projections that all funding would be spent by year-end. Provincial Treasury believed that underspending was likely in the Technical Secondary Schools Recapitalisation Grant of R13 293 million, due to delays in awarding of tenders for new workshops in technical high schools. In relation to infrastructure performance, the province spent R5 097 billion (64.3%) of its total adjusted infrastructure budget of R7 927 billion, with a projected underspending of R600 661 million. The majority of the budget was allocated to the Department of Human Settlements (34.4%), Department of Public Works (30.3%), Department of Energy (17.8%) and the Department of Health (14.2%).

The province continued to face problems of poor planning and infrastructure. Integrated systems had been rolled out to the Departments of Education and Health, to improve planning. The Department of Public Works looked to improve capacity challenges. Poor project management was being addressed by improvements in capacity.

Discussion
The Chairperson stated that the Department of Human Settlements affected the dignity of people. A school laboratory affected the way in which a learner was being educated through a practical exercise in natural science. If this had been listed a priority, then this Committee should not be discussing the same problems as were raised in 2009. Each province should remain accountable. The committee was looking at the fiscal position and the national economic position of the province, and whilst each department should be moving forward, it seemed that there was no movement as the same problems were raised year after year.

Northern Cape Provincial Treasury
The Chairperson said that distance was a big problem for the Northern Cape and he made a proposal that it would be useful to make more use of video-conferencing. It was 805km from Springbok to Kimberley. To have officials travelling weekly to Kimberley wasted working time and was very expensive.

Mr SE Mokoko, Head of Provincial Treasury, Northern Cape, stated that a headcount had been done in the Northern Cape, in the Department of Education, and headcounts would soon be rolled out to other departments. Provincial Treasury provided money to the Department of Health but it had not commenced the headcount, so that money was taken and included in the process to implement the headcount for all departments. The headcount process was biometric aided, and finger prints would be used to identify particulars, to ensure that the person existed. After the current financial year, the process should have been completed, ensuring that figures on the systems were credible. The biometric-aided system was very helpful; for instance it was highlighted that in the Department of Education 386 people could not be traced, and this enabled that department to be questioned about whey they were on the system, what they had been paid, and when payment to them stopped.

Mr Mokoko stated that in November 2013 the Standing Committee on Public Accounts (SCOPA) had held a meeting with the Departments of Public Works and of Health, looking at quarterly progress. He had been unable to attend, but thought it important to look at what was presented here. He repeated concerns that the projections by departments were not always accurate. If provinces projected that they would overspend, they would only receive money that was approved in the budget. Provincial Treasury put systems in place to ensure that provinces met their obligations. Treasury needed to exercise control and determine whether the departments simply wanted, or actually needed more money. The Department of Public Works projected to overspend by R147 million, but money was recalled from it.

The Chairperson asked why R147 million was recalled back from the Department of Public Works.

Mr Mokoko stated that during the allocation process at the beginning of the financial year NT made a mistake and allocated more funds to this province than expected, later corrected by money being recalled. However, the Department of Public Works projected it would overspend by R147 million, but because it was likely that in Limpopo there would be under-spending, the money was recalled and returned to NT.

Mr Mokoko repeated statements of the other provinces that the real problem with provinces lay not with their financial issues, but in the management of departments. He asked the Committee to put more effort and focus into the management of the departments. Provinces were characterised by poor implementation.
It was not the main responsibility of provincial treasuries to collect interest on money invested, but where there was slow spending, the provincial treasuries would tend to invest money overnight, in order to earn interest. In this regard, there had also been over collection against projections (R19 832 million). He noted that in fact, Provincial Treasury should not make projections on what it could collect, but should concentrate on ensuring that money was transferred to departments. However, the Department of Health had been under collecting, and Provincial Treasury was working with it to ensure it operated effectively in the collection of patient fees.

In relation to the conditional grants for the Department of Agriculture, Land Reform and Rural Development poor spending was visible in the Comprehensive Agricultural Support Programme grant (57.6%) as well as Ilima Letsema projects (50%).

Conditional Grants for Education, and provincial spending in the Expanded Public Works Programme Incentive both were at 50%. Provincial Treasury had a meeting with the Department of Education to determine what contributed to the slow spending. It was noted that this Department was not spending on infrastructure, but had used R10 million intended to improve capacity building late in the financial year.

The Department of Health was a big concern, as spending patterns were low, and it had explained that the HIV and Aids Grant business plan had to be revised three times. The Hospital Revitalisation Grant was delayed due to implementation agents (Public Works and Independent Development Trust) delaying in awarding tenders.

Slow spending in the Human Settlements Development Grant for the Department of Cooperative Governance, Human Settlements, and Traditional Affairs (COGHSTA) was due to late procurement processes by municipalities. The Department noted that it had taken up to six months, and had now appointed service providers. Mr Mokoko stated it was not clear how this Department would accelerate spending, as there were only three months left before year end. At the end of the third quarter in 2013, the department had spent 50% of its budget, but by the end of the financial year, it had spent 100%. However, Provincial Treasury discovered that this department “dumped” money into the municipality. In February and March the Department had spent 50% of its budget. Some houses were still at the foundation level, although money was paid and projects were not completed. At the national level, it was stated if provinces underspent their budget then no roll over would be allowed, and this was the reason that they sought instead to “dump”, at the instruction of the Chief Director. In addition, this Department provided R15 million to the National Housing Finance Corporation (NHFC). Mr Mokoko requested that money should be returned to National Treasury, and there should be a contract indicating what the NHFC should deliver. Instalments should only be paid to NHFC when it fulfilled obligations, but there was no obligation in this case. Mr Mokoko stated that an elaborate scheme was developed whereby individuals falsely signed off that houses were built. The Department was instructed to communicate with Treasury if its budget could not be spent. 

The Department of Sport, Arts and Culture underspent by 50% for its Community Library Service Grant, due to a delay in the appointment of personnel for this grant, and underspent 60% of its budget for the Mass Sport and Recreation Participation Programme, due to a delay in procurement of sport equipment and the appointment of staff.

Overall, due to projected overspending by the Department of Health, Education and Public Works, there  was anticipated to be R77 423 million overspend. It was also projected that there would be overspending on provincial capital assets, and Provincial Treasury had slowed down the cash flow to ensure that problems were addressed.

Mr Mokoko stated that he had meetings with the Department of Education regarding the compensation of employees. In 2008 the budget was overspent by more than R200 million, when this Department appointed people despite having no budget.

The Department of Health had not distinguished between a conditional grant and the equitable share. If the department did not pay money towards conditional grants then steps would be taken to ensure that conditional grant money was not used for other expenses. Mr Mokoko stated that the Department of Health departments had indicated, where there was slow spending, that this was based on a cash flow problem. However, he pointed out that if departments did not indicate where the problems were, to Provincial Treasury, they could not be helped.

Provincial treasury had, in order to strengthen internal auditing, employed a Chief Audit Executive, two Senior Managers as well as lower level staff.

Discussion
The Chairperson stated that fiscal dumping was a big problem. He stated that there was a trend in the Departments of Agriculture, Land Reform & Rural Development, of underspending. Departments should be trained on preparing and spending their budget, and he pointed out that departments were often found to be under-spending even in the first quarter.

The Chairperson pointed out that in regard to the Kimberley Mental Health Hospital, there was a programme being run by the national Department of Health, and it, together with the provincial departments, should be taking a very hands-on approach.

North West Provincial Treasury briefing
The representative from the North West Provincial Treasury stated that in this province, the departments had spent R22.1 billion (73.53%) of the R30 billion provincial annual budget. Two departments were projected to overspend - Department of Education and the Department of Health, and in both cases this related to compensation of employees, to a total of R214 480 million. Their expenditure should be carefully managed for the last three months of the financial year. He pointed out that usually, many departments would underspend in the area of compensation of employees because they took time to fill posts. The average provincial spending on compensation of employees was R12.8 billion (76.13%) of the allocated R16.8 billion as at 31 December 2013. The Department of Education had been instructed by Provincial Treasury to contain its budget.

In this province, the Department of Human Settlements had been performing particularly well, and NT had said that R52 million would be appropriated to the department. The Human Settlements 2013/14 budget for conditional grants was R1.2 billion, and it was currently spending up to R1.1 billion, or 85.85%. The Department of Human Settlements was ranked as one of the best departments in the country. By end December 2013 it had spent R1.2 billion (80.11%), with this spending trend being 5.11% above the estimated mark of 75%.

Provincial Treasury had needed to intervene to assist the Departments of Education, Health and Public Works by providing funding for the appointment of technical staff. Provincial Treasury was involved in the recruitment of technical staff, to assist departments. Provincial treasury assisted departments to obtain quality applications.

In relation to infrastructure spending, the provincial infrastructure budget amounted to R1.7 billion, with 51.56% expenditure as at 31 December 2013.

The Department of Sport, Arts and Culture could improve on the conditional grants and infrastructure.

The Department of Public Safety was doing well on infrastructure, and funding was provided for weighbridges, but there had been delays between the Department of Public Works and Public Safety on implementation.

There were concerns about infrastructure spending for the Departments of Economic Development, Environmental Conservation and Tourism.

The Department of Local Government and Traditional Affairs’ spending trend was 25.83% below the estimated mark of 75%. This low figure was linked to the input about the adjustment budget. The Executive Council in the province decided that all departments which were not at 50% spending by the first six months of the financial year should have some of their budget redirected to other departments. Through an adjustment budget, Local Government and Traditional Affairs received R150 million and Provincial Treasury would meet with this Department and discuss how it would spend the money.

At the end of December 2013 the Department of Public Works Roads and Transport spent R2.3 billion (60.47%).

For the Department of Social Development, there was a concern regarding conditional grants and infrastructure, since this Department had under-spent in 2013, on its conditional grants, by R2.8 billion.

Provincial Own Revenue collected as at 31 December 2013 was R656.5 million (79.87%), which was 4.87% above the estimated 75% mark. The province projected to over collect by R38.9 million.

In order to assist with challenges around budget planning, monitoring and implementation in 2013/14 Provincial Treasury had:
- established the Provincial Budget Forum which aimed to improve budget planning and execution by creating a platform to share challenges, to identify best practices and procedures to improve the quality and comprehensiveness of government spending
- improved the credibility of the Medium Term Fiscal Framework and the scope of practical economic impact analysis
- refined expenditure management;
- decided to conduct quarterly engagements with departments on the provincial management of personnel, particularly the compensation of employees, the growth in non-critical areas of support and administration, to prevent recruitment of staff without sufficient funds in the budget, and encourage the appointment of skilled staff, particularly to the key positions of planning and financial management.

This Provincial Treasury asked the Committee to note the projected overspending of R213 million related to the Departments of Health, and of Education, on compensation of employees. Departments should review its spending trends with the remaining budget in mind, and where their budget could not be absorbed, then consideration would be given to reprioritising to critical areas.

Discussion
The Chairperson said the North West did well on the over-collection, but asked what it was doing about the spending on conditional grants.

Mr Mashile asked about provincial treasuries’ role on delivery of services by department, and the oversight function in ensuring control and efficiency on resources, and how a balance was achieved.  Some presenters seemed to be finding excuses why departments were not performing, while others had been quite specific and indicated where they did not agree with departments. There was no need to seek reasons why departments were not doing their work. Treasury must inform departments what was expected, and Provincial Treasury must be the leader in financial matters. He pointed out that it was the Provincial Treasury who must assist this Committee to know what was taking place in the provinces correctly, and if it was not doing this effectively, then the Committee would continue to be misled by departments on under or over spending. Fiscal dumping was being done in all provinces.

Mr Mashile asked what exactly were Provincial Treasuries saying during inter-departmental meetings to departments, and what explanations departments gave for requesting additional funding and then not spending it. He also asked how departments showed that they were likely to overspend on conditional grants, or needed more money to fund them?

Mr Mashile referred to the over-collection of funds, and asked why departments were apparently “surprising” their Provincial Treasuries by selling machinery or assets. Issues around programme management needed to be corrected. He also referred to service delivery protests in provinces and asked what Provincial Treasury had to say about that, whether departments were being supported to ensure that their plans were executed, or called to order if they transgressed the Public Finance Management Act (PFMA). He referred to the reference in one presentation to cutting of all expenditure on goods and services to mitigate over-expenditure on compensation to employees, and asked for Provincial Treasury comment on that.

The Eastern Cape Provincial Treasury responded that provincial treasuries had to serve a dual role; working with departments to assist them, and ensuring that they followed the rules. He noted that Provincial Treasury should play a role in preserving of the integrity of resources, provide oversight and leadership, and also maintain interest in service delivery. These different roles were linked to issues about mandates. In respect of the conditional grants, provision was made to employ personnel to ensure corresponding capability to execute. The Cabinet Committee responsible for the budget also had sub-committees to which the MEC of the respective departments and Provincial Treasury contributed, and here, Treasury would ensure that it gave sound opinions to departments. In regard to revenue collected, he said that Provincial Treasury did anticipate this so it should not be a surprise, but it was possible that machinery may have been sold without this being specifically budgeted, but as long as there remained assets, Provincial Treasury could not reject the sale. It was obviously expected that, for instance, the Department of Health should not sell goods instead of doing its job of collecting patient fees.

Mr Chaane asked what measures were put in place to address the challenges in the Department of Human Settlements in the Eastern Cape.

Mr Chaane asked North West Provincial Treasury how it was projecting an overspend when most provinces reported under expenditure based on conditional grants.

The North West Provincial Treasury representative explained that the province had an Infrastructure Technical Committee for Conditional Grants, which met on a monthly basis. The information discussed by the Infrastructure Technical Committee would be communicated to the departments. Provincial Treasury also carried out extensive visitations on process. There were problems around provincial recommendations being implemented by departments. Provincial Treasury tried to ensure that the departments driving infrastructure had sufficient capacity. The net effect of the projections of under-expenditure against the projections of over-spending came to a concluded over-expenditure, mostly because of compensation of employees. The Provincial Treasury questioned the capability of departments, for instance, when the department claimed it could spend 100% on infrastructure while Provincial Treasury projected 50% use of the budget.

Mr Chaane asked Mr Mokoko what actions had been taken against those who had been forced to sign documents that effectively distorted the books, or whether they had simply been allowed to continue.

Mr Joseph asked about the recommendations by the Auditor-General on the annual performance, and whether was there guidance and monitoring taking place.

Mr Mokoko referred to the recommendations he provided when he was instructed to investigate misconduct in the Northern Cape. The MEC for COGHSTA should institute a full stake forensic investigation and the Office of the Auditor-General should complete the investigation within 30 days after being appointed. The report of the Auditor-General usually specified what actions should be taken against those who breached the law. The Chief Director responsible for housing delivery, deeds and spending should be suspended pending the investigation. Provincial treasury should liaise with the National Housing Finance Corporation to return funds, with interest. He shared the recommendations with the MEC of the Northern Cape Provincial Treasury and with the MEC of COGHSTA.

Mr Chaane referred to conditional grants for the Department of Agriculture, Land Reform & Rural Development. In the Northern Cape, spending was already at 108% of the total budget allocated, and to date only R0.55 million was received from the national Department, although the spending was R2 321 million. He wondered why the national department took so long to provide the full grant. Northern Cape reported that projects could not start because of slow implementation of personnel requirements, and he wanted more information on that.

Mr Mokoko stated that the Provincial Department would spend and report, and, based on its report, the national Department would release funding. National departments provided departments with incentives when they spent more of their budget.  He added that the Division of Revenue Act permitted departments with infrastructure requirements to have a certain amount spent on acquiring capacity. NT had assisted the Department of Education to obtain the right people for the job. If the Department of Education did not then spend money on hiring the right individuals, this would result in underspending.

Mr Joseph asked the Eastern Cape Provincial Treasury what lessons were learned from the adjustment budgets, which had been approved, yet departments continued to underspend. He asked, in regard to the poor performance of the Department of Human Settlements, whether it had received guidance on the adjudication of the tender committee regarding competency, criteria, checklists, and the history of companies given tenders. It was clear that that the companies awarded tenders were failing the people, government and the provincial departments.

The response was that there were better processes working at national rather than provincial levels. The remainder of the response was unclear.

Mr Joseph asked the Northern Cape Provincial Treasury whether interest earned should not go back to Treasury, rather than remain with the department concerned, since the latter surely should not be rewarded for underspending by keeping interest.

Mr Joseph asked the North West Provincial Treasury what happened to money that was returned due to underspending, and whether it was given to the Departments of Education and Health as they were projected to overspend.

The North West Provincial Treasury representative stated that the reduction was part of the adjustment budget. The Departments of Education and Health received an additional amount of R220 million, but both departments were expected to put measures in place so they could remain within the budget.

Mr Lees stated that for five years a common excuse proffered was “late appointment of staff” but he pointed out that this was not a valid excuse if the planning was poor. The adjustment budget was a projection, and if provincial treasuries could not get their budget right then there was not much hope for departments, and provincial treasury would overspend by R10.527 million. He stated that it was disingenuous to say that the compensation of employees would show “small over expenditure” when in fact there would be an over expenditure in the Departments of Education by R236.910 million. It was not clear where teachers were placed, as many rural schools were in short supply of teachers, and generally the over-spending on teachers simply arose because they were placed in the wrong schools, meaning another over-spend on furniture and transport. The reality was an education disaster in the Eastern Cape. It would be surprising if Mr Mokoko's report to the Committee was different from the one he submitted to SCOPA, as he thought that both reports would be based on facts. He pointed out that each provincial treasury should  know the financial position of its province and know where money had been transferred from other projects, what the current spending was, and what the projected expenditure was.

The Eastern Cape Provincial Treasury representative responded that the bulk of the money for the adjustment budget came not from National Treasury but “from the revenue from which provinces were funded”. In the eastern part of the province there were huge discrepancies in infrastructure and overcrowded class rooms, but this was different from the western side of the province. Provincial treasury requested the Departments of Public Works and Education that they should motivate their requests for extra funding for school furniture and additional class rooms. Both had experienced problems in procurement of people to do these improvements. There was a need for temporary teachers until March because the teachers were in the wrong place.

Mr Chaane stated that the North West should provide information on progress to date relating to the rationalisation of public entities.

The North West Provincial Treasury stated that the investigations into the North West Development Corporation had been completed, but the amendment of the legislation still had to take place. Other rationalisation processes were still to take place regarding the Department of Labour and the Department of Education, and here the Department of Economic Development would take the lead for implementing programmes.

Mr Chaane referred to the Provincial Road Maintenance Grant, which was reduced to R147 million during the 2013/14 adjustment budget, but the Department of Transport then apparently redirected an amount of R187 million. He asked the Northern Cape Provincial Treasury for clarity.

Mr Mokoko stated that when the Northern Cape received its final allocation letter, the Department of Roads and Public Works was due to receive R659 million for the conditional grant. Provincial Treasury allocated R159 million. National Treasury then said it had erred in doing the calculation, which meant that the Department had received too much, and R147 million was returned to NT. It was also discovered that the Department of Roads & Transport in Limpopo would not spend its entire budget, so it did not receive any more allocations. Because the Department of Roads and Public Works in the Northern Cape could spend its budget, the money withheld from Limpopo was transferred there, making up a total of R187 million given to that department.

The Chairperson stated that at the start of the meeting he had asked to be told the fiscal position of the provinces, listing the budget, estimates and spending. He asked the provincial treasuries if they had an overdraft, and if so, how much it was. He also asked if they showed any instances of unauthorised or wasteful and fruitless expenditure. In terms of the PFMA, he asked what exactly the provincial treasuries were doing. He noted that the Committee needed to know about monitoring of the conditional grant for libraries, and provinces’ transfer of funds to the municipalities, but although money had apparently been transferred the programme was not officially rolled out. When communities were visited, there was a need to look at how old their library books were, and whether the libraries were connected to the internet.

Mr Mokoko said the Northern Cape Provincial Treasury did not have an overdraft, and any instances of fruitless and wasteful expenditure was dealt with by SCOPA.

The North West Provincial Treasury representative also stated that it had no overdrafts, but that, at the time of writing the report, unauthorised expenditure amounted to R427 million.

The Eastern Cape Provincial Treasury representative stated that in this province there was no overdraft, and there was no unauthorised expenditure, but there was R232 million worth of wasteful expenditure. Provincial Treasury continued to engage with departments to deal with wasteful and unauthorised expenditure but it was taking much longer to deal with the official level costing and to demonstrate whether there were services rendered to government.

The Eastern Cape Provincial Treasury stated that in 2011-2012, a specific programme administered by the Department of Public Works and the Department of Administration had discovered people still on the payrolls, who had left or in some cases even died. This explained why there was a decline in the number of people hired. 464 people applied for retirement because of poor health, but this was never approved. In the Department of Education, document management and missing files were a problem, and if an individual wanted to move to pension, but his file could not be found, the Department of Education continued to pay the individual a salary, even though it was years since he had worked in the school. These issues led to overspending.

Ms L Mabe (ANC, Chairperson of the Provincial Committee for Finance) told North West Provincial Treasury that at the end of last year, most departments were underspending funds, and wanted to know if there had been any changes in the Department of Public Works, and how Provincial Treasury was ensuring that this Department was delivering on the conditional grants.

The North West Provincial Treasury representative stated that the Department of Health had indicated that it would not transfer programmes to the Department of Public Works, and the bulk of programmes in the former department were not linked to the latter. In the Department of Education, most programmes apart from maintenance were done by the Independent Development Trust. Provincial Treasury would ensure that the Department of Public Works could implement projects related to education and health, and had since  deployed infrastructure officers to ensure that both the Department of Public Works and the Department of Safety implemented their programmes.

Mr Mashile asked how Provincial Treasury could assist the Committee in bringing discipline to provincial departments in relation to conditional grants. These were supposed to force certain service delivery, but some departments were using their conditional grants to pay salaries. He pointed out that the responsibility for discipline actually rested with the MEC and provincial treasuries, and there were a number of sections of the PFMA that dealt with this, including sections 38, 45, 25 and 18.

The Chairperson asked what had happened since 2012 in Limpopo. He stated that the Anti-corruption Task Team in Limpopo had identified 302 cases, and Provincial Treasury could cooperate with this unit. In the Eastern Cape, it seemed that Provincial Treasury was hands-on with the Departments of Education and Health, and it had been stated that it had a role to play with recruitment and all other processes. It had admitted, however, that it did not do as much in other departments. In regard to the Department of Health, section 182 emphasised that the departments must reform procurement. Delays in contract management between Departments of Human Settlements and Public Works should be resolved. The National Department of Human Settlements had provided assistance at one point to the provincial department. He said that underspending on adjustment budgets was related to the Planning Commission, as time had been taken to complete the diagnostic processes. He noted the comment that some machinery to be imported from Germany would arrive only at the end of the month, but need to be paid in April. He noted that in regard to underspending, Provincial Treasury actually returned funds because of failure to have structures approved. Provincial and National Treasury and Department of Public Service and Administration had a structural review exercise.

Mr Mokoko stated that during the adjustment estimates, the National Department of Health provided the Northern Cape Provincial Treasury with an estimate of R57 million to complete the Mental Health Hospital. However, the contractor was not performing, and it was suggested that the Department should call up the penalties and have the contractor removed.

The Chairperson stated that the Upington Hospital was built without any problems. He asked why the same contractor, with good performance history, was not used for the Kimberley Mental Health Hospital. The costs had escalated to R1 billion.

Mr Mokoko stated that those who were tasked with deciding on a contractor did not make good decisions. The Department of Public Works had an agreement with the contractor and should make a decision. He suggested that perhaps the relevant departments and Provincial Treasury could be asked to address the Committee directly, to prevent a situation where one might seek to blame the other. Commenting on the suggestion earlier that video-conferencing be done, he said that municipalities, if asked to install these facilities, would no doubt rely on outside contractors for technical skills.

The Chairperson stated that the costs associated with video conferencing were far less than costs associated with spending long hours on the road to get to meetings.

Closing comment from Financial and Fiscal Commission and National Treasury
Mr B Khumalo, Acting Chairperson, Financial and Fiscal Commission, agreed with comments on the unreliability of the figures produced by the various departments. He stated that NT should develop its own figures to ensure reliability.

Mr Khumalo noted Mr Sishi’s presentation and performance report, in relation to the Departments of Human Settlements, which gave the impression that this sector was performing, but the reality was that houses were not being built, or, where they were, they did not adhere to housing norms. He also noted that scholar transport in Mpumalanga had not been resolved.

Mr Sishi acknowledged the frustration of the Committee when the same issues were raised time and again. Government struggled to provide services, but the non-governmental organisations and the private sector seemed to be able to achieve. He reiterated that there were too many people in senior positions in the public sector who lacked the right skills, yet continued to be employed. It was necessary to ensure that the right people were appointed to the right jobs, and if people were not needed in a particular area, they should  not be there.

The Chairperson stated that a new Select Committee on Finance would be taking over shortly. This Committee would continue to try to ensure good governance, sound financial management and full compliance with the PFMA.

Mr Mashile noted that the Committee could assist in oversight as long as the reports were processed properly. Provincial Treasury had to balance finances and service delivery in the province, and had to use its influence and guidance so that provinces could perform better.

Mr Mokoko also stressed that there should be consequences for poor performance.

The Chairperson noted that the Committee was also tasked with monitoring the Anti-Corruption Task Team, as part of the Limpopo intervention.

The meeting was adjourned.