Third quarter 2013/14 expenditure: National Treasury, Provincial Treasuries of Gauteng & Free State briefings

NCOP Finance

11 February 2014
Chairperson: Mr C De Beer (Northern Cape, ANC)
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Meeting Summary

National Treasury reported on the provincial spending for the third quarter of 2013/14. It was stated that Gauteng had the largest adjustment to its budget, which amounted to R3.55 billion, and that a considerable amount of the budget went to the Department of Health. Free State had the smallest adjustment to its budget at R86.615 million. The Free State slowed spending on travel and subsistence, but for quarter three, Gauteng increased this category of spending. The Free State had taken steps to deal with irregular expenditure such as dismissing five officials linked to the 23 roads issue. In Gauteng and Free State, the Department of Education was responsible for increased spending, but this was due, in Gauteng, by the influx of learners into the public schools, and the increase in teachers to deal with this. However, there was concern why the figures for transport of scholars and school nutrition remained constant. For both provinces, NT suggested that they must balance their budgets and use their resources more effectively and efficiently. National Treasury stated that it made it clear to provinces that their projections on spending was unreliable and needed to be fixed.

The Gauteng Provincial Treasury outlined that it received an equitable share of R46 billion and conditional grants of R11.9 billion, whilst it collected R3.2 billion from different departments as own revenue. The Gauteng Provincial Government projected to collect R4 081 billion for 2013/14.  A number of departments lagged behind in meeting expenditure targets, showing between 55% and 63% expenditure. which showed an increase of R90 068 million in comparison to 2012/13 post-audit revenue collections. Other departments projected overspending their budget, particularly the Departments of Health (R1.0 billion), the Department of Education (R456 million) and the Office of the Premier (R70 million). The Department of Human Settlements, Health, Roads & Transport and Infrastructure Development projected to spend 50% above its budget in the remaining months, which the Gauteng Provincial Treasury stated was unrealistic. There was a concern (shared with other provincial treasuries also) that the figures provided by departments were unreliable. Accruals (un-paid invoices) were a major problem, as current expenditure was being used to address previous unpaid expenses. Accruals were resolved by taking money from different departments to offset this issue, and Gauteng had, in this way, made strides in reducing the substantial accruals of the Department of Health from many years ago. However, it was also stated that had it not been for the accruals from previous years, the province would likely not over-spend. Overly-high expenditure was recorded for the Education Infrastructure Grant (96%), School Nutrition (84%) and Land Care (78%). Spending for Health grants was at 60% due to slow infrastructure spending. It was noted that the position in regard to the education sector was skewed, firstly, by enrolments that were much higher than expected, due to influx into the province, and secondly by the fact that the financial and school years were not aligned. Members commented that, in general, planning was poor. The Gauteng Provincial Treasury was asked about its role in ensuring skills development and job creation, what it was providing by way of bursaries, and was asked to explain the situation with the teacher posts, whether these were new appointments or funded vacancies, because of apparent conflict with the NT assessment of the situation, and to explain the Gautrain issues and give the cost of the Online system. Provincial Treasury was taken to task for making sweeping statements in its presentation about looking into reducing or eliminating accruals, instead of stating what exactly was done.

The Free State Provincial Treasury noted that 76.2% of its budget went towards social service spending, in Education, Health and Social Development. Its adjusted budget for the 2013/14 financial year was R19 million. The provincial overspending was attributed to the Department of Education, in respect of increased compensation of employees, although it was noted that a headcount was being done and there was consideration to the teacher: learner ratio. It was projected that the Free State would overspend by R1.3 billion. After the budget lekgotla it was decided that, that in order to reduce the pressure in the Department of Education, a moratorium should be placed on appointments of other employees in all departments. Provincial Treasury was working closely with the Department of Health, and task teams were deployed to ensure efficiency. In October 2012, cost containment measures were implemented in the provinces, to reduce expenditure on non-core items. Debt was a big issue for the Free State, with provincial debt growing from R21.4 billion in 2010/11 to R26.9 billion in 2013/14. Provincial treasury had considered asking an appointment analyst to address administrative issues, but the Committee was critical at this, asking how it intended to pay for the analyst and suggested that the province itself must do headcounts. There had been issues with the Department of Health in previous years around medicines, and task teams were trying to ensure greater efficiency. Underspending was apparent on the conditional grants for the Departments of Agriculture, Education, Sport and Recreation, and hospital construction, spending on conditional grants was low at 34.2%. There had been delays in the construction of hospitals, but it was believed that the grants could be spent by the end of the financial year. The Expanded Public Works expenditure had started late, and this was now likely to show more progress. It was expected that Free State would over-achieve on own collections.

Members cautioned the provinces about spending on conditional grants and said this would be questioned by the Select Committee on Appropriations. They asked about job creation, were concerned at the regression in debt collection, and asked why there was still money sitting in the bank and why Free State had not sought approval or advice from NT as to how to appropriate it to the relevant departments. Questions were asked whether the money for roads revitalisation would have positive impact also on the roads into KwaZulu Natal, which were in shocking states. Members insisted that the role of provincial treasuries was to ensure that departments did not fall into deficit, but stronger oversight must be established also. They questioned why this province thought it would spend the conditional grants and expressed concerns about the distinct possibility of fiscal dumping, did not believe that the hospital revitalisation grant could be spent. Members asked if its decision to award additional bursaries was sustainable. In respect of both Free State and Gauteng it was stressed that influx of learners could not be used as an excuse since the province had other figures that, if used properly, would allow it to better calculate the needs. Lack of planning and lack of financial planning were highlighted by Members, and in a closing comment by the Financial and Fiscal Commission. Members raised questions about the lack of life cycle costing, in the Zola and Natalspruit hospitals. Provincial Treasuries were warned not to make sweeping statements about ability to spend without having data to back this up.

Meeting report

Third quarter 2013/14 provincial expenditure reports
National Treasury briefing

Mr Edgar Sishi, Chief Director: Provincial Budget Analysis, National Treasury, stated that the Gauteng Province had the largest adjustment to its budget, amounting to R3.55 billion, and a considerable amount of the budget went to the Department of Health. Free State had the smallest adjustment to its budget at R86.615 million. The nine provinces’ combined projected spending, as at 31 December 2013, would amount to R433.59 billion. He stated that Gauteng projected to overspend on its budget, but National Treasury (NT) believed Gauteng would not overspend. All nine provinces had spent 7.3% higher in this third quarter, in comparison to the previous financial year. Free State and Gauteng had not significantly increased their spending, based on the 2013 spending trends. The cash position of the provinces was in a healthy position.

The Pay Master General (PMG) referred to individual bank accounts of specific departments. In the Free State, the PMG stood at 168 and in Gauteng the figures stood at minus 3.216. Provinces experiencing negative figures were using their revenue funds to cover individual overdrafts of their departments, and NT was watching specific departments. Provinces spent more money on compensation of employees, followed by goods and services, such as medical supplies, infrastructure contractors and learner teacher support material (LTSM).

Recruitment was typically seasonal, so it was more useful to compare calendar years than financial years. From December 2009 to December 2012 there had been a significant increase in provincial staff numbers from 875 731 to 931 471. Eastern Cape, Kwazulu-Natal and Limpopo encountered a decline in overall staff, but Gauteng and the Free State continued to hire more people.

The Eastern Cape, Free State and Limpopo were spending a significant amount of their budgets on administration, whereas the Western Cape, Gauteng and Mpumalanga spent the least on administration.  

Between quarter one and quarter two, spending on non-core items such as catering increased. Between quarter two and quarter three, a decline in catering was visible. From quarters one to three the Free State had slowed down its spending on travel and subsistence, but Gauteng increased spending in these areas in the third quarter.

Mr Sishi stated that the financial projections of provinces were not reliable. For the 2013/14 financial year, provinces projected to overspend by R3.555 billion, but in the previous year, they had actually underspent by  R7.519 .billion. NT expected provinces to underspend by between R6.5 and R7 billion, if current trends continued. Specific interventions by provinces included implementation of cost-containment measures in line with the Medium Term Budget Policy Statement (MTBPS), headcount verifications and biometric controls and Supply Chain Management (SCM) reform.

As at 31 December 2013, the Department of Education was driving spending in the Free State. Increased spending was seen in the Department of Police, Roads and Transport, and in the latter instance, Free State had to extricate itself from a situation where construction companies stopped working on 23 road contacts as they were not paid. Mr Sishi stated that the Free State should reduce its staffing numbers in the Department of Education. It must realign its spending plans in line with the demographic trends by census information. NT had given money to provinces such as Limpopo, Eastern Cape, Kwazulu-Natal and Free State, to cope with the influx of people into those provinces, but this would cease in 2015/16. Free State should consider the financial implications of its activities properly, particularly the award of bursaries to additional students, provincial-specific initiatives with the Roads and Agricultural sector, in-sourcing of contract staff, appointment of additional Cuban doctors and the strategy for funding of the MACUFE festival. Provinces should make more financially informed decisions and determine whether they could sustain initiatives, for they were now using those as excuses for financial pressures. He emphasised that in the Free State, the problems were around decision making not finances. The Free State had taken steps to deal with officials for irregular expenditure and financial misconduct. Five officials were dismissed in relation to the 23 road contracts, and six officials were suspended from the Department of Human Settlements for irregular expenditure.      

On aggregate, the Gauteng spending was not high, showing 72.2% in the third quarter, and it should meet the budget, although it had projected an R1.56 million overspend.  In Gauteng, the Department of Education was responsible for increased spending. It had experienced an influx of learners to public schools, and more money had been spent on  appointment of new teachers to accommodate growth in learner numbers. NT had provided Gauteng with an additional R9.6 billion to cope with demographic trends. Gauteng should ensure that money would reach critical areas. Spending pressures in the Department of Health were I relation to medicine, medical supplies and property payments. The operation of new hospitals in Zola and Natalspruit also contributed to current pressures, but signalled a lack of lifecycle costing to assess the affability of new construction. In the areas of Basic Education, both Gauteng and Free State had to spend for more learners than planned. NT believed that the School Nutrition Programme should be assessed. In both these provinces, less learners than expected were being transported under the Scholar Transport schemes. In the health sector it was of concern that provinces were not meeting targets for the total clients remaining on Anti Retroviral Therapy (ART). Mpumalanga’s planning and target setting lacked credibility. Mpumalanga had the worst reported record of placing TB-HIV co-patients on ART. Free State did not plan housing units for the first quarter, and for the second and three quarter did not meet planned targets.

Mr B Mashile (Mpumalanga, ANC) stated that in schools, especially in the lower grades, dropouts occurred, but he wondered why then the figures presented for the School Nutrition Programme were constant and did not reflect the changes in learner numbers. He asked similarly how the numbers of children benefitting from the scholar transport system could have remained constant from the first to the third quarter. He wondered if the implication was that there were no dropouts and no teenage pregnancies, which seemed unlikely, and was worried that this Committee was not getting properly-calculated figures from the provinces that correctly  represented changes on the ground.  

Mr Sishi stated that before NT published information it expected the provinces to publish their own data for accountability. He noted that in the past, it had sometimes happened that figures were merely copied from previous financial quarters, but there were bigger issues in terms of how schools were running their School Nutrition Programmes. He stated that Departments might also deliberately pre-select a certain number and then simply deliver to that number – this had happened in KwaZulu-Natal, where departments employed agents to deliver food to schools, and the agents merely delivered against the number supplied by the Department. He agreed that credibility of the numbers was a problem, but that NT continued to work on it.

Mr Mashile noted that the Gauteng Provincial Treasury had also said it was concerned about the credibility of figures and had asked departments to improve their data.

Mr D Joseph (Western Cape, DA) asked about planning for the influx of people into the city, using the examples of funding for schools, libraries, hospitals and police stations, and how government was made aware of these areas. He asked if this information was captured during census time, or whether the changes would only be recorded in the next census.

Mr Sishi stated that the National Census was taken every ten years, but within that time period Statistics South Africa collected data, referred to as the Median Population Estimates, and this was published each year. These statistics provided projections on the South African population in provinces, and in district municipalities. He noted that data was provided by the National Department of Basic Education on the enrolment of learners, and data from the district health system determined patient load in the nine provinces. Provinces should manage their resources more effectively.  

Mr S Montsitsi (Gauteng, ANC) welcomed the R9.6 billion provided by National Treasury to Gauteng and asked whether this amount was sufficient to address the challenges of staffing in Gauteng.

Mr Sishi stated that R9.6 billion was a large sum of money. The R9.6 billion was money assessed by NT, through data, that had to be moved from other provinces to Gauteng. Gauteng should balance its activities given its resources and reduce inefficiency as the money was not unlimited. South Africa should work within its allocated resources.  

Mr B Mashile asked what the response of the Free State and Gauteng was when they received information that NT did not support their projected budget spending.

Mr Sishi stated that in the past, when NT provided briefings on provincial finances to the Provincial Councils, Parliament and other forums, it simply provided projections on provinces. It was clear that NT could not take ownership for what it was saying, as the numbers were not reliable and it made this quite clear, and stressed to the provinces that they must fix their numbers. Mr Sishi stated that provinces were still not taking ownership of their figures, and it was agreed that the nine heads of Provincial Treasuries would address this issue, as a project.

The Chairperson stated that provinces could only spend money in their possession. They would have to look at the learners in grade 9 and 10, as the budget cycle worked in three years, the present year and the two outer years, so that  planning should be continuous. However, the engagements with provincial treasuries so far revealed that planning was a big problem.  

Gauteng Provincial Treasury presentation
Mr Mandla Nkomfe, MEC for Finance, speaking also on behalf of Gauteng Provincial Treasury, stated that by 31 December 2013, Gauteng had received R61 billion from NT and through its own revenue collection. NT provided Gauteng with the Equitable Shares allocation of R46 billion and conditional grants that amounted to R11.9 billion. A total of R3.2 billion was collected from different provincial own funds.   

Mr Nkomfe stated that in the 3rd  quarter, spending of ring-fenced funds amounted to R3 billion, of conditional grants amounted to R2.2 billion and spending on infrastructure development amounted to R278 million. The Departments of Education, Human Settlements and Roads and Transport had not utilised ring-fenced funds effectively. 

He stated that, ideally, provincial spending per department should be at 75% of the total voted funds as at the end of December 2013. Currently, however, the expenditure was 73.72. He noted that the following were lagging behind, with their percentage of spending:  The Office of the Premier (63.09%), Department of Cooperative Governance and Traditional Affairs (58.93), Department of Human Settlements (55.84), Department of Road and Transport (65.19%) and Department of Finance (63.03%). The Department of Economic Development (81.24%) and Gautrain (77.99%) were spending above the targets.

Gauteng Provincial Government (GPG) projected to collect R4.081 billion for 2013/14, which showed an increase of R90.06 million in comparison to 2012/13. It had collected R3 255 billion (79.76%) at the end of the third quarter, but expected to collect R826 million (20.13%) for the remainder of the 2013/14 financial year, meeting its targets for revenue.

However, due to a number of outstanding invoices, dating back to 2011/12 and before, especially for the Departments of Health, Education, Housing and Infrastructure, the purchasing power of the province for the current financial year was eroding. The Gauteng Provincial Treasury had instructed all departments to submit proof of pre-payment audits of old invoices during the 2011/12 financial year, before making any payments.   

He noted that the Gauteng Provincial Government’s main spending budget was adjusted to R3.5 billion, and that additional allocations were made to goods and services in Health, procurement of Learner-Teacher Support Materials in Education, compensation of employees, infrastructure delivery in Education, Provincial Roads Maintenance grants and the Gautrain’s operational requirement and the extension of the Gauteng online contract. Its overall expenditure amounted to R57.4 billion.

It was projected that a number of departments would overspend its budget. These included the Department of Health (R1.0 billion - based on Cuban doctoral programmes and the re-grading of clerical posts), the Department of Education (R456 million, for accruals), the Office of the Premier (R70 million because of costs incurred on state funerals during the financial year) and the Department of Roads and Transport (R18.7 million, due to pressures in its operational budget). He summarised that by the end of quarter 3, expenditure of R5 billion (54%) was recorded, but it projected to spend R5.1 billion in the last three months, which would amount to over-expenditure of R735.8 million. The Departments of Human Settlements, Roads and Transport, Infrastructure Development and Social Development contributed to the projected over-expenditure. However, he noted that the Departments of Human Settlements, Health, Roads & Transport and Infrastructure Developed were projecting to spend 50% above their budgets in the remaining months, which the Gauteng Provincial Treasury believed was unrealistic.

Mr Nkomfe outlined that high expenditure was recorded for the Education Infrastructure Grant (96%), School Nutrition (84%) and Land Care (78%). Spending for Health grants was at 60% due to slow infrastructure spending.  

Mr Jeffrey Mashele, Deputy Director-General, Gauteng Department of Finance, commented on the projected expenditure for the GPG. The Department of Health over-expenditure amounted to R1.0 billion, and the province had an accrual of R1.5 billion. He stated that the province had to use money from one year to pay for expenses incurred during a previous year. He noted that the current budget would not cater for what was planned. Had it not been for the R1.5 accruals from previous years, it was likely that it would not overspend.

Mr Mashele further noted that there was a difference, in the education sector, between the financial and the school years. The budget tabled in March was affected by what took place in the calendar year. At the start of the school year, if an influx of learners occurred, this was the first quarter of the school year but the fourth quarter of the financial year, and adjustments would have to be made to cater for the inconsistency. He reiterated that there was high expenditure in the areas of education, and the Gautrain and extension of the Gautrain On-Line Contract in particular. The budget tabled was credible but faced a number of challengers.  

Mr Nkomfe provided clarity on the appointment of teachers, as raised by Mr Sishi, and said that these were not new posts, but replacements for those who had resigned or retired.

Free State Provincial Treasury briefing
Mr Godfrey Mahlatsi, Head of Department, Free State Provincial Treasury, apologised for his late attendance to the meeting.

The Chairperson stated when NT briefed the Committee, provincial treasuries should ensure that they were also available to ensure better communication between the structures.

Mr Mahlatsi stated that 76.2% of the Free State budget went towards social service spending, in Education, Health and Social Development. The adjusted budget for the 2013/14 financial year was R19 million, of which R14 million was social spending. The projected over-expenditure was mainly attributed to the Department of Education, who projected an over-expenditure of R1.1 billion, mainly for the compensation of employees. The Department of Health projected an over-expenditure of R43 million, related to the accruals of previous financial years, which would be addressed by a turnaround strategy. Non-social service spending stood at 73.3%. The average expenditure of the Free State Provincial Government was 75.4%. At the moment, it was expected that Free State was in line to overspend by R1.3 billion, but this figure would be reduced.

He outlined the percentage of spending in each of the 2010 to 2013 financial years. In the 2013/14 financial year to date, the Department of Education spending was 78.3%, the Department of Health was 73.6% and the Department of Social Development at 74.9%. The Department of Police, Roads and Transport spending amounted to 79.3%, and it had a trend of overspending. On 9 January, the Free State Department of Police, Roads and Transport received R420 million, and NT should specific what this money would be used for.

The Chairperson stated that the Free State Provincial Treasury would get a response to its question today, and highlighted the importance of Mr Mahlatsi being present for the whole meeting.

Mr Mahlatsi continued that the province projected to overspend R839 million on the compensation of employees, mainly due to the Department of Education, and for transfers and subsidies it projected over-expenditure of R182.3 million, whilst overspending for payments for capital assets was projected at R34.1 million.

The Department of Education spending on compensation of employees consisted of 50.2% of the provincial budget and the Department of Health compensation of employees consisted of 32.9% of the budget. The Department of Education had considered amending its learner teacher ratio, to reduce the numbers of teachers in the system. Changes should be made in the administrative composition of the Department of Health, to reduce compensation.

The Free State spending on compensation of employees was at R838 million, and Provincial Treasury was working on this issue. It had proposed, to the budget lekgotla, that in order to reduce the pressure in the Department of Education, a moratorium should be placed on appointments of employees in all departments. The Executive Committee had then decided that no appointments would be made in Free State until the new financial year. Provincial treasury had considered asking an appointment analyst to address administrative issues.

The Chairperson interjected to ask how Free State would pay the analyst if it was already projecting to over-spend. He stated that the province should conduct a headcount, and NT should take note of this.

Mr Mahlatsi continued that goods and services in the Department of Health would reflect an overspend of R42 million, and Provincial Treasury must deal with this situation. In the previous financial year, there were issue around medicine dispensing, and checking expiry dates, and now Provincial Treasury was working closely with the Department of Health, and had deployed task teams to ensure efficiency. The budget lekgotla agreed that the Province should commence a headcount process.

There had been underspending on the conditional grants by the Department of Agriculture, with only 52.4% of the R207.4 million budget spent, with very little on the Comprehensive Agricultural Support Programme (CASP). The Department of Education spending on conditional grants was low at 34.2%. There had been delays in the construction of hospitals. The Departments were asked to address this. The Department of Sport, Agriculture and Recreation spending on conditional grants was 33.2% of the R103.5 million budget. However, he thought that the money allocated to conditional grants would be spent before the end of the financial year  

Mr R Lees (Kwazulu-Natal, DA) stated that the table on conditional grant spending was not being read correctly, as the projected expenditure was quoted as if it had already been spent. He clarified that in fact, taking the Department of Public Works as an example, it had spent 72.5% and was projected to spend 27.5% in the fourth quarter.

The Chairperson thanked Mr Lees for sensitising the committee to the figures.

Mr Mahlatsi stated that the Department of Social Development had spent 20.7% on the Expanded Public Works Programme (EPWP) Incentive Grant for Provinces, because it started late. The MEC for Finance held a meeting with all the departments and municipalities to ensure that EPWP expenditure improved. There was likely to be much progress before end of February on the EPWP.

In October 2012, cost containment measures were implemented in the provinces, to reduce expenditure on non-core items. The Free State had complied with the new cost containment measures introduced by NT. Provincial treasury has revised its Instruction Note to with the national Note. Provincial Treasury had an action plan to strength monitoring of budget execution. Letters were addressed to Accounting Officers and to Chief Financial Officers on a monthly basis, outlining the observations of Provincial Treasury and departments were expected to respond and take corrective action. Sterner measures would be used to enforce fiscal discipline, including withholding of transfers and budget blocking. Provincial Treasury was particularly focused on ensuring that money was spent where it should be spent.

The Turn-around Strategy for the Department of Health was aimed at restoring financial sustainability, improve efficiency in the management of assets and liabilities, enhancing governance and improving service delivery. Here, expenditure management initiatives included reducing the number of interns by not renewing contracts, encouraging early retirement of administration and support staff, renegotiating working hours with some medical support staff, such as radiographers, reviewing capacity and redeploying staff.

Own revenue collection for the province amounted to R856.3 million, much of which was collected by Department of Police, Roads and Transport. The Province was expecting to over-achieve on own collections. In line with the Provincial Revenue Enhancement Strategy, 5% of the total provincial own revenue budget would go towards Revenue Enhancement Projects, which included spending of R4.4 million spent on the Revolving restaurant, R4.7 million on the Glen Dairy revival, R3 million spent on an Electronic Booking system for the Department of Economic Development, Tourism and Environmental Affairs. Provincial Treasury proposed the re-assessment of cell-mast tariffs and advertisements on government buildings.   

However, the Province was concerned with the rising levels of provincial debt, which had grown from R21.4 billion in 2010/11, to R26.9 billion in 2013/14. Compensation of employees grew from R12.6 billion in 2010/11 to R15.8 billion in 2013/14, and out of the additional R4.9 budgets provided, R3.2 billion went to compensation of employees.

The Chairperson cautioned the provinces about their spending on conditional grants. Since the Members of the Select Committee on Finance were also serving on the Select Committee on Appropriations, they would be focusing on departments in this regard. He was concerned on spending, in particular, for the Education Infrastructure Grant, School Nutrition and Land Care, and the fact that the Gauteng province would not spend its Health Facilities grant, Roads Maintenance grant and National Health Insurance grant in full. He asked for an explanation on these issues.   

In regard to the Free State, the Chairperson asked how much was spent on job creation in the R4.4 billion spend for the revolving restaurant. He was also concerned at the regression in debt collection, which he asked National Treasury to note.

Mr Mahlatsi noted that the revolving restaurant was not a new facility, but one that had been under-utilised and was now being revived according to expressions of interest, and it would help in revenue collection.

Mr Mashile noted the R420 million from NT that was still sitting in the Free State bank, and asked why the Provincial Treasury, if it did not know how to use this money, had not contacted NT to discuss how the money should be appropriated.

Mr Mahlatsi stated that the Department of Police, Roads and Transport had received a letter from the National Department of Transport, indicating that the R420 million should be allocated to provincial road maintenance, but the use of this money had not been gazetted, and this was needed before it could be used. He was not sure when this would be done, and hoped that maybe NT would be able to tell it what was to happen.

Mr Mashile stated that provincial treasuries must assist all departments so they do not fall into deficit, but they should also act as oversight structures. The health of finances in the province was reflected by the health of the provincial treasury, and if that was not organised, financial stability would not be achieved.

Mr Mashile noted that R922.3 million was left for spending on infrastructure, and questioned the statements, even though the financial year was almost over, that the Free State Provincial Treasury was convinced that it could spend this money before the end of March 2014.

Mr Mahlatsi reiterated that in his presentation he highlighted concern at the ability of the Department of Health to spend its budget on hospital revitalisation. Provincial Treasury was not convinced that the budget for infrastructure in this department would be spent.

Mr Mashile asked the Free State provincial treasury why EPWP started so late, and cautioned that this was probably to do with poor planning.

Mr Mahlatsi noted that the provincial Department of Public Works was the coordinator and the custodian of EPWP projects, but the Provincial Treasury realised a need to intervene. The MEC had instructed municipalities and departments to develop, and deliver to Provincial Treasury, concrete plans on how funds would be spent.

Mr Mashile noted that Gauteng had a similar issue to the Western Cape, that money moved to agencies and was reported as spent, even though it did not translate into direct provision of services. He asked how Gauteng would handle this anomaly. He also asked how under-expenditure could still occur after budget adjustments were requested and granted.

Mr Mashele responded that projections in the 2nd quarter for Housing projected an over-expenditure of R5.1 billion, and the budget adjustments brought this figure down. To this extent, there was a relationship between budget adjustments and the projected outcome.

Mr Mashile said, to the Gauteng Provincial Treasury, that when money was used to pay for expenditure incurred in a previous financial year, this undermined the current budget, and prevented a focus on its own priorities and deliveries. This showed a lack of financial discipline.

Mr Mashele noted that Gauteng was now moving from the situation where accruals had been high. The past accruals for Department of Health were over R5 billion, and in order to address this, money had to be taken from other areas. The Gauteng Provincial Treasury had reduced the accruals for the Department of Health significantly, down to R1.5 billion for the last financial year.

Mr Mashile said that a March spike would no doubt be visible, in light of problems highlighted, where provinces simply engaged in fiscal dumping to get the figures right. He cautioned that there was a need to be wary of officials who were making advance payments before the end of March, especially for infrastructure, when no services had actually yet been delivered. This frustrated the intentions and the promises that politicians had made on service delivery.

Mr Mashile stated that if Gauteng wanted to expand, its expenditure on Human Settlements should have been higher, and the only reason why it had spent 64% was its refusal to suspend where it was not satisfied that there were active contractors on sites. The municipality should be urged to fulfil all the conditions. He believed that Gauteng Provincial Treasury should be looking into the real issues; it was not suspending for fear of later fiscal dumping.

Mr M Makhubela (Limpopo, COPE) asked Gauteng what was being done by that Provincial Treasury to attract skills to the departments and also ensure skills development and job creation.

Mr Nkomfe stated that the Gauteng Provincial Treasury was in partnership with the South African Institute of Chartered Accountants, to assist students studying accounting with bursaries so they would be ready for the job market.  

Mr Makhubela asked if Gauteng Provincial Treasury would still be taking decisive steps to fast track delivery of projects, especially in the Department of Human Settlements. He referred to the sweeping statement about accruals, but asked if it was actually researching or effecting elimination of such accruals.

Mr Mashele stated that the Gauteng Provincial Treasury looked at old invoices and determined that they could be audited, because Treasury did not simply want to pay these invoices, but also find ways to improve its systems.

He added that decisive steps were taken by the Premier, to remove the Head of the Department of Human Settlements, and bring other people to assist that department.

Mr Makhubela asked that the Free State Provincial Treasury should provide more clarity on what exactly it had done around the debt.

Mr Mahlatsi stated that the collection of debt was a priority of the province, as outstanding debt figures continued to rise. Provincial Treasury was focusing on debt owed by ex-employees that it believed could be recovered, and it had instructed departments to ensure that they were not over-spending on staff.

Mr Makhubela asked what programmes were in place in Free State to strengthen financial management in all departments. For all three quarters, the Department of Human Settlements showed slow spending, and he asked where exactly its challenges were.

Mr Mahlatsi noted that Provincial Treasury would try to ensure that provincial departments and municipalities were spending where needed. Work was being done on irregular and wasteful expenditure, and how the control environment of Provincial Treasury could be strengthened. He agreed that the Department of Human Settlements was marked by slow spending in the first two quarters. It had delayed the procurement process of the building of houses, and was focusing more on incomplete houses. Provincial Treasury had revised the business plan of the department, which was also now approved by the National Department of Human Settlements. According to the plan, more money would be allocated to the Community Residential Unit (CRU).  

Mr Mashele also addressed the question by noting that in 2013, a decision was taken by the National Department of Human Settlements that the bulk of the money in the Gauteng Provincial Department should go to the City of Johannesburg, the City of Tshwane and Ekurhuleni, to deal with sanitation. This had created instability in the systems, and unhappiness in other parts of the region. There were attempts to deliver.

Mr T Chaane (North West, ANC) asked Gauteng to provide clarity on the R3.5 billion adjustment budget, and the challenges of balancing the academic and financial years in the education sector. He could not understand how the province could experience such problems in terms of planning, and said that the influx of learners should not come as a surprise, since surely Treasury was aware of influx numbers. That could not be used as an excuse for failure to plan correctly.

Mr Mashele agreed that it had been clear that there would be an influx into schools, but the actual numbers were not clear. At the start of the 2014 academic year, Gauteng had an additional 40 000 learners that were not anticipated, and, as already stated, this was the 4th quarter of the 2013/14 financial year. When the equitable share was updated in November, the registration figures were those from the previous academic year. 

Mr Montsitsi commented that no statistics on influx were actually presented, and he agreed that if the provinces were planning properly, the statistics from the previous years could be used to show how many people had been planned for by the provincial treasuries. He too urged the need for better planning.

Mr Chaane thought, for both Gauteng and the Free State, that they could spend their budgets, but echoed the NT’s concerns whether this would actually be done. Provincial Treasury had merely stated that it was confident that the budget could be fully spent by March, but NT had concerns still about capacity.

Mr Chaane asked the Free State Provincial Treasury to explain why the Departments of Agriculture and Public Works were allowed to overspend their budgets.

Mr Mahlatsi stated that the Department of Public Works had only spent 72.2% of its budget, but it projected over-expenditure, followed later by a statement from the Head of Department that he would not overspend. The main issue here was the credibility of the data projecting the overspend. The Department of Agriculture was faced with infrastructure challenges in revitalising the College of Agriculture.

Mr Chaane noted that in the Free State R80.438 million was reprioritised towards bursaries, but no indication was given how much related to each department. He asked what the impact would be of taking money away from departments that needed that money for specific projects.

Mr Mnguni asked whether the bursaries were sustainable.

Mr Mahlatsi stated that the Free State awarded the top 100 students in the province with bursaries, as well as providing bursaries for 500 needy children in the province. He realised that there was an issue about sustainability. Government has worked with the private sector on providing these bursaries. Free State had high unemployment rates, poverty and a heavy dependence on mining, which was failing. The Free State was restructuring its budget to ensure that more money was spent on reviving the economy.  

Mr Lees stated that accruals could not be used as a reason for over-expenditure, and that did not actually address the problem. He further questioned why the document presented by the Gauteng Provincial Treasury was marked “Confidential” although this was a public meeting. He asked what, in the presentation, “Funds requested”  meant – and whether this was actual payment. He also asked what “ring-fence” meant in relation to provincial finances, and whether this meant rollovers approved.

Mr Mashele explained that in some cases departments requested funding but actually spent less than they had requested. Provincial Treasury was given figures of what was expected to be spent in the next year. The use of “ring-fence” related specifically to conditional grants and infrastructure. When money was transferred from NT to the Provincial Treasury, the money was ring-fenced and must be transferred as requested by departments, to ensure that money went to its intended purpose.

Mr Mnguni noted that in the Free State and Gauteng, accruals had grown from R43 million to R257 million in the last four years. He wanted to know how many jobs were lost, how many small and medium enterprises (SMEs) had fallen by the wayside, and what the plan was to move forward.

Mr Nkomfe stated that the Gauteng Provincial Treasury had taken an executive decision to clear out accruals, and had been making progress since 2005. He agreed that if it was not addressed, it could negatively affect small businesses who were not being paid. The Provincial Department of Health was under administration, and section 18 of the Public Finance Management Act (PFMA) had been invoked so turnaround could take place and payments could be put in order.

Mr Lees asked what was meant by the Gautrain’s operational requirements, and how much was involved. He also asked what the Gauteng online contract was, its cost on month-by-month basis, and why there was not a plan for a smooth transition from the online contract to the eLearning solution.

Mr Mashele stated that the Gauteng Management Agency was responsible for the operation of the Gautrain, as distinct from other issues, which was why that was specified. The Gauteng Management Agency dealt with the water seeping in the Gautrain tunnel, and consultants and lawyers needed to be brought on these issues. Gauteng Online was planned for termination, but there had to be an assurance that the e-Learning solution to be brought in would transition smoothly. Gauteng Online was the information technology systems in the province with regard to the provision of eLearning material in the schools. The spending on this system was R42 million every month.

Mr Lees asked if the R70 million overspending on state funerals referred to the funeral of former President Mandela. He asked about details of state funerals and their cost.

Mr Mashele stated that the State funerals were not limited to the former Presidents only, and a number had been held.

Mr Lees noted that in Gauteng, the Provincial Department of Health and particular hospitals were constantly making negative news, and the degree of low spending was apparent. He was not confident that the province would spend its budget by end of March, in particular on the hospital revitalisation.  

Mr Mashele stated that the Gauteng Provincial Treasury also thought that the Health Facilities Revitalisation grant would not be spent in full.

Mr Lees noted the reference to the Premier having removed the former Head of Department of Human Settlements, but asked whether and how the MEC was involved.

Mr Nkomfe stated that the MEC conducted interviews but the appointment and dismissal were done by the Premier with the MEC.

Mr Lees stated that Gauteng was contradicting NT. NT had stated that 1 054 employees were taken into un-funded teacher posts. Gauteng Provincial Treasury stated these were existing posts left vacant. He assumed that retirements and resignations left funded post vacancies.

Mr Mashele noted that the Gauteng Provincial Treasury had engaged with the Department of Education, but was told that these people were taking over in posts left vacant by retirements and resignations, but were regarded as new appointments.

Mr Lees asked what Gauteng was doing about the lack of life cycle costing, in particularly for the projects such as Zola and Natalspruit hospital.

Mr Mashele responded that there was no lack of life cycling costing for projects like Zola, where the Gauteng Provincial Treasury had attempted to resolve challenges in Zola and was busy procuring equipment for this hospital.

Mr Nkomfe added that project planning was very important, and Provincial Treasury had a cycle that was accredited. It should be able to complete projects conceptualised in September /October. Gauteng Provincial Treasury was confident that it would turnaround this issue.

Mr Lees stated that the Free State had been given money to settle the issues around the 23 roads, but asked how this would be spent. It could surely not be paid to municipalities who were on the verge of collapse, and asked if spending would be stopped for services because the province lacked the money. For the last five years, the Committee had discussed the problem that provincial and national departments were not paying the municipalities. The reports usually promised to fix the issue. Now, however, Free State simply said it could not pay municipalities the R120 million this year.

Mr Lees indicated that no mention was made of in the Free State report on wasteful expenditure for the Vrede Dairy Project. He asked what it was costing the province, and if it was included in the figures presented.

Mr Mahlatsi stated that roughly R140 million had been spent on the Vrede Dairy Project. He visited the Vrede Dairy farm and stated that the media reports had not provided a complete picture of what was happening, as there was activity, although he could not comment on all issues.

Mr Lees asked what was happening with the website and who was being held accountable.

Mr Mahlatsi stated that the province did not agree with the assessment that there had been wasteful expenditure on the website. He stated that newspapers referred to ‘a website’, but in fact 38 websites had been developed for all municipalities in provinces and for all provincial departments which amounted to R47 million.

Mr Chaane instructed Mr Mahlatsi to answer the questions directly; when he added new issues he was inviting more questions.

Mr Lees asked to make a comment. In instead of confusing the committee, as he was inviting more questions to clarify what was being said.

Mr Lees noted that in Kwazulu-Natal, on some roads people have died due to the poor condition of the roads and he asked if the 23 roads in Free State would also take care of those conditions that negatively impacted on the economy in KwaZulu Natal.

Mr Mahlatsi noted that during the budget lekgotla, an MEC requested that fixing of roads in Kwazulu-Natal should be prioritised in the next financial year. He added that the Chief Director of National Treasury had said that this province has taken steps against those implicated in the 23 roads issue. With the assistance of NT, the Department of Public Service and Administration, together with the South African National Roads Agency (SANRAL), had looked at the quality of roads and assessed value for money spent. Free State reduced the pricing allocated to the 23 roads and millions were saved through the consultation process.

Mr B Mnguni (Free State, ANC) asked whether, when spending was planned but service providers were not paid, those amounts would be ring-fenced so that they were paid when the invoicing was sorted out.

Mr Mahlatsi stated that his Provincial Treasury was working closely with the Department of Health and the Department of Education on addressing the financial health of departments, linked to accruals.

Mr Bongani Khumalo, Acting Chairperson, Financial and Fiscal Commission (FFC), stated that the provincial treasuries’ move to verify employees was a major achievement. The issue of shifting funds in the last quarter was a problem, and departments should attend to their planning in good time to ensure that they could start in April and not have to push projects to the last quarter. He stated that if projects had started timeously, this would have addressed some of the grievances of the people. He pointed out that various meetings had raised the question of conditional grants and the need to ensure that the funding was spent. Money should not be returned to National Treasury.

Mr Sishi stated that financial planning in provinces was poor, and so was their non-financial planning. Better planning overall should take place in the Department of Education. The Gautrain was on a rider-ship guarantee which resulted in an adjustment of the budget by R600 million. He noted that in the Free State the decisions were not properly assessed.

Mr Khumalo noted, in regard to the migration, that the provinces should be asking for a budget increase to cope with an influx of people. He stated that there was a need to check where the money was going, and whether it was “following the people” in such instances.  

The Chairperson noted the time constraints and said no further questions could be asked.

The meeting was adjourned.


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