Committee Reports on 2012/13 and 2013/14 quarterly provincial Treasury budgets & expenditures

NCOP Finance

19 March 2014
Chairperson: Mr C de Beer (ANC, Northern Cape)
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Meeting Summary

Members met to adopt Committee reports and minutes. The first report, which was unanimously adopted with some amendments, related to the 2012/13 provincial treasury budget and expenditure reports. Provincial treasuries had interacted with the Committee between May and August 2013. Most of the changes suggested were fairly technical textual corrections, or were amplifying more generalised statements on spending in the provinces. Members deleted some paragraphs from the recommendations and observations sections that set out statements of fact only. In respect of the recommendations, it was noted that the new committee would need to monitor the follow-up on the Committee recommendations. The recommendations on spending spikes were clarified, because Members pointed out that the mere fact that there were spikes in spending late in the year may not necessarily indicate that there was a problem, as it was quite possible for a project to plan to spend in March or April, but that if this was so, then it must be supported by proper business plans. They concluded that reference should be made to the need for proper in-year planning, to curb fiscal dumping. Members agreed that an analysis of the position should be sent to the next Parliament, within three months of commencement of that Parliament. It was suggested that provincial treasuries needed to monitor and manage how provincial departments were deviating from performance targets. A further important point was that provincial departments must not simply send staff members for training, but appropriate staff members who would be able to feed the value of the training back to the departments.

Members also adopted the Committee Report on the 2013/14 Third Quarter Provincial Treasury budgets and expenditure, which was presented to the Committee in February 2014. It was confirmed that the figures presented were preliminary in the sense that they had not been audited yet. Emphasis was placed on the need for all provinces to conduct a headcount exercise, similar to what had been done in Limpopo, and the wording was amended to emphasise that this was still in progress in some provinces but that there were concerns that the process was very slow. It was also noted that budgets, as a result of unreliable projections, remained a challenge. Members also expressed their concern about a recent trend that departments would receive money, in line with business plans that predicted that they would be spending at a certain point of the year, but on the ground, either as a result of poor planning or poor monitoring of implementation of projects thus far, they were not actually ready to spend at the time that the money was transferred, and would place the money in a savings account, for it to accrue interest (or even to be lent out to other entities), instead of focusing on getting to the point where they could spend. In some cases, despite the savings accounts, they had then still projected over-spending and claimed more during the budget adjustment process. The Committee was insistent that this practice was undesirable for provinces to try to save or deposit money, instead of spending it on real service delivery. This observation was included in both the findings and recommendations. In regard to consultants, the Committee amplified that whilst it accepted that use of consultants was sometimes warranted, the total spending on consultants must be quantified, and it should be stressed that spending should be happening to support service delivery and to build proper internal capacity, rather than hiring consultants. Provincial treasuries needed to be better resourced to strengthen their support. The Committee noted its concerns that whilst bursaries were to be supported, they had not been happy with the Free State redirecting money from elsewhere to boost the bursaries in an apparently haphazard manner.

Members adopted minutes of 4, 5 March (two meetings) and 11 March, and an ANC Member asked for a correction of the minutes adopted on the previous day, in which his party had been wrongly stated.

Meeting report

Adoption of draft Committee reports
2012/13 Quarterly provincial Treasury budgets and expenditure
The Chairperson noted that the report had been circulated to Members already.  The interaction with provincial Treasuries had been run between May and August, to try to ensure that MECs could be present. He asked that Members go through the report page by page.

Mr B Mashile (ANC, Mpumalanga) thought that there was nothing particularly controversial up to page 12, and he suggested that perhaps more time should be spent on the observations and recommendations from page 13.

Members agreed with that suggestion and moved to page 13.

The Chairperson noted that he had checked the pages from 1 to 12 and they did indeed really summarise the input from the provincial treasuries.

Mr Mashile said that the sentence “provinces relied on the information provided by provincial departments” was not quite clear – it was in fact the provincial treasuries who had relied on that information.

The Chairperson and Mr R Lees (DA, KwaZulu Natal) also suggested that the “monthly reports”  should be amplified with the phrase “on spending information”.

Mr Lees suggested a textual correction for paragraph 4.2.

Mr Mashile said that paragraph 4.2 needed to be corrected. It was not all the provincial departments who showed spikes in spending. For this reason, he suggested that the report should say that “some” provincial departments were not able to spend. Other Members agreed with this.

Mr Lees suggested that a similar change needed to be made in 4.3. As it presently read, it was not precise enough and he suggested the addition of “and funds are not necessarily spent”.

Members agreed that “some” should also be added to amplify the reference to provincial departments.

Mr Lees suggested that “proportionately” should be moved to after “spend”, as the current wording suggested that there was no spending.

Members were satisfied with paragraphs 4.5.

Mr Lees suggested a textual correction to the second sentence of 4.6 to read “provinces are not budgeting accurately” but he also noted that some may be, so he also suggested that “some provinces” should rather be used at the beginning of the sentence.

Mr Mashile asked if it was correct that financial planning was done in the Chief Financial Officers' offices. Sometimes, financial planning happened in specific departments. He fully agreed that financial management remained a challenge. He asked what was intended by the reference to “financial planning”, whether it was the responsibility of the offices and how relevant it was.

Mr Lees suggested that this probably referred to some departmental CFO offices.

Mr Mashile agreed that this was probably correct. He would prefer to leave the reference then to financial planning.

Members were in agreement with paragraph 4.8, which was purely factual. The same applied to paragraph 4.9.

Mr Mashile wondered if these needed to be recorded as observations.

Mr Lees agreed with Mr Mashile, and suggested that 4.8 and 4.9 rather should be moved into the section of the report that dealt with the Free State province.

Members agreed with paragraph 4.10.

Mr Mashile questioned the use of the word “generic” in paragraph 4.11.

Mr Lees agreed, particularly since later there was a reference to “most departments” although he asked other Members to check that this was accurate, as he could not recall.

The Committee staff confirmed that this would be verified.

Mr Mashile suggested that the last part of paragraph 4.12 set out a perception and the words after “budget” should be removed.

Mr S Montsitsi (ANC, Gauteng) asked whether the province had in fact spent 99% of the 2012/13 budget.

The Chairperson said that this had been the submission in the meeting.

Mr Montsitsi asked if the Committee had been able to verify that.

The Chairperson read out paragraph 3.7, which set out the figures of the budget and spending.

Mr Lees suggested that this was merely a statement of fact, and thus 4.12 could be deleted.

Mr Mashile agreed that the sentence referring to the spending could be removed. However, he wanted the sentence referring to the technical report to be retained. For the first time, Western Cape had submitted a voluminous report. The words after “substantially interact” could be deleted.

Mr Lees suggested that “health” should be deleted from paragraph 4.13 as there was a reference to hospitalisation.

Mr D Joseph (DA, Western Cape) suggested that there should be a statement that the money was surrendered “to National Treasury”.

Members were in agreement with paragraph 4.14.

Mr Mashile questioned whether paragraph 4.15 could be correct and he said that the Committee had not interacted with the Department of Public Service and Administration. Members agreed to remove this paragraph.

The Chairperson asked Members to now move on and consider the recommendations.

Mr Lees said that the statement in 5.1.3 was moot, because the meeting had since taken place and he did not think that provincial treasuries had yet received the report in order to act on it.

The Chairperson confirmed that the new committee would need to interrogate that.

Mr Mashile questioned whether the second bullet point may not necessarily be a problem, as they could be justified by particular plans. If there was proper planning and spending in year, it could inform the spending.

Mr Montsitsi reminded Members that their concerns had arisen from the presentations given, which had shown that provinces had simply decided to dump funding. Mr Mashile had picked this up from the presentation and had questioned whether they had done their planning properly. The process of delivery could have been more equitable, but the graphs clearly showed that this spending had happened purely because National Treasury was at that time considering the next allocation.

Members discussed possible wording, and there was a suggestion to refer to “poor planning” which would result in fiscal dumping.

Mr Lees said that Mr Mashile's concerns were not so much that there was not planning, but that each case would need to be checked on its own merits. For instance, proper planning for hospital equipment to be delivered in March would be acceptable, and it would result in planned service delivery.

The Chairperson suggested “in year planning to curb fiscal dumping” might be a better phrasing.

The Chairperson asked Members to comment on the request that there be a detailed analysis of financial and non-financial information.

Mr Mashile wondered whether the Committee would have the capacity or time to deal with the information.

Mr Lees asked where that recommendation emanated. The Western Cape report had been highly technical, but he could not recall whether some provinces had given too little information.

Members suggested that, in bullet point 3, the reference to a “detailed analysis” be changed to “an analysis” and that this should be sent within three months of commencement of the Fifth Parliament.

Members discussed the next bullet point, and Mr Lees explained that he thought that it referred to the alignment of spending.

Mr Joseph thought that the main point was around deviations from the budget. There should be management and monitoring of how provincial departments were deviating from performance targets.

In paragraph 5.2, the Chairperson made a technical correction, and Members noted that Gauteng also needed to be cited, along with KwaZulu Natal and Western Cape.

Mr Mashile wanted a reference, in bullet point 1, to the need for provincial departments to ensure that appropriate staff members would attend the training offered by National Treasury. This would ensure that the staff sent for training would produce the right results.

A Committee section official suggested that perhaps this could be added to the recommendations under 5.1, as it was more relevant to that section.

Members agreed to remove some wording from 5.3, and amplified the reference to assistance with “continue to assist the provincial treasuries”.

Mr Mashile questioned whether it was correct that only Mpumalanga and Gauteng still had to verify the matter.

The Chairperson confirmed that he was correct; there was actually the point raised that Treasury should be doing a headcount check, similar to that done in Limpopo, in all provinces.

Members agreed to the report, as amended.

2013/14 Third Quarter Provincial Treasury budgets and expenditure
The Chairperson reminded Members that this report covered meetings that took place in February 2014. He suggested that Members move directly to the observations.

Mr Mashile agreed with that, saying that pages 1 to 13, similar to the other report, set out statements of fact, and asked the Committee staff to double-check that all information was correctly reflected.

Mr Lees wondered if paragraph 4.1 should not refer to “some provinces”, or name the specific provinces.

Mr Lees asked whether the “estimate” referred to in paragraph 4.2 was done by National Treasury , he thought that “calculated” was probably more correct. He was not sure where the information had come from.

The Committee staff confirmed that the figures were preliminary, in the sense that they had not been pre-audited. Members then agreed to use the adjective “unaudited” rather than “estimated”.

Mr Lees added that the previous report had recommended that the headcount process should be used. This report claimed that it had been done.

The Chairperson said that he had been quite insistent on this point when the provincial treasuries appeared. In his province, the process was very slow.

Mr Lees said “took long to finalise” suggested that it had been finalised and he suggested that “is taking a long time to finalise” was better wording. 

Mr Mashile said that paragraph 4.3 contained both negative and positive comments. He wondered if there should not be a reference to “unrealistic budgets”.

Mr Joseph suggested that it was possible to say “budgets as a result of unreliable projections remained a challenge”.

Mr Lees asked what the “trend” referred to in the second sentence.

Mr Montsitsi thought that it was a spending trend, as observed in the third quarter. He agreed with the Chairperson's suggestion to change the wording to “the following trend has been observed, that provinces overspend...”

Mr Lees referred to paragraph 4.5 and thought that the point was not so much the fact that some provinces had money  in a bank account, but the fact that the money had not been spent on service delivery. He understood that the money had to be held somewhere, and it would not make sense to keep it in a cheque account.

Mr Mashile reminded him that provinces had money tucked away, but were asking for additional funding because they claimed that they would be over-spending. He understood Mr Lees' point; government should be in the business of spending on service delivery, not making money. In municipalities such as Klerksdorp, which the Committee had visited, there was money kept in the bank for other municipalities to borrow, yet this municipality was not even removing its own refuse.

Mr Montsitsi liked the statement in regard to the provinces' use of money. The “savings” were supposed to be spent on service delivery. He suggested that the Committee should make a specific recommendation that provinces should not be encouraged to save or deposit money when they should be spending it.

The Chairperson jumped to paragraph 5.5, which said that funds in savings accounts compromised services. Members agreed with this and said that it was correctly worded. He asked whether, in view of this, Members wanted to re-phrase 4.5.

Mr T Chaane (ANC, North West) had been about to suggest that this paragraph be deleted. A savings account could be used, if it was used as a transmission rather than an investment account. The facility was there for provincial departments to use.

Mr Montsitsi drew a distinction. Mr Chaane had been saying that this was a Treasury instrument. Whilst that was true, it was what the provinces were doing that was problematic. Provinces should not simply be “storing” money, as this posed the risk that a pattern would be built up where departments kept money back in their savings account, whilst still claiming more.

Mr Mashile said that Chief Financial Officers in the private sector were advised to hold on to the money as long as possible to generate interest, paying their service providers on the very last day possible. This practice was now being followed in the public service also. Conditional grants were being transferred, but departments were holding on to that money. This was not part of the normal banking operations of the departments and it led to ill-discipline in not using the money for service delivery.

Members agreed to retain both paragraph 4.5 and the recommendation set out in paragraph 5.5.

Mr Mashile thought a correction was needed to the last sentence of paragraph 4.6. It should say that the transfer of money did not necessarily mean that services had been rendered.

Mr Lees agreed, but thought that the sentence should conclude “that the money had been spent and services had been delivered”.

Mr Mashile stressed that ultimately there would be service delivery, and Mr Montsitsi added that the problem was that provinces tended to transfer to agencies before delivery took place. Delivery should take the form, for instance, of building a school, tarring a road or building a dam. The mere fact that money was being transferred to the agents did not mean that delivery had taken place at that time.

Mr Chaane suggested that the same points had been dealt with in the previous report, and he thought that paragraph 4.6 could be deleted from this report, but the new Committee would have to monitor the responses. Other Members agreed.

Mr Mashile thought that paragraph 4.7 was a statement of fact.

Mr Chaane said that the problem was the use of consultants. He would be comfortable if the report quantified the total amounts spent on consultants by all provinces. Singling out only the Western Cape because it had spent more than others did not quite capture the Committee's main concern that the amounts spent on consultants unnecessarily could have been better spent on service delivery.

Mr Mashile said that this was a report on specific provinces. The observation on one of the provinces was reflected here, and he reminded the Members that there had not been engagement with all of them. He thought that the observation should remain, for the Western Cape, but in the recommendation section, there should be a generalised recommendation on spending on consultants to all the provinces.

The Chairperson suggested that recommendation 5.7 could later then be changed.

Mr Joseph thought, in regard to the Western Cape, that perhaps this was also covered already in 3.4 and he was not sure that paragraph 4.7 should remain.

Mr Mashile said that it did not appear on pages 5 and 6 of the report, and therefore the observation should be removed.

Members agreed to remove paragraph 4.7.

Members agreed to paragraph 4.8.

Mr Lees suggested that, in paragraph 4.9 the phrase “caught by surprise” should be changed to “and are unprepared for the numbers of additional learners”.

Mr Lees suggested that paragraph 4.10 should state that funds were moved and re-allocated to bursaries.

Mr Mashile said that the correct message should be conveyed in paragraph 4.11. He thought that the word “particularly” must be removed, and it should be specified that challenges were apparent in some of the departments.

Mr Mashile then suggested that paragraph 4.12 should not start with “there seems to be” as this seemed to create doubt. He would prefer it to read “There are no measures”.

The Chairperson moved to the recommendations section of the report.

Mr Mashile said that there should be a specific reference to who should be implementing the recommendation.

Mr Montsitsi suggested that this paragraph was referring to training by National Treasury.

Mr Lees wondered who should be training on “informed decision making”.

Mr Montsitsi thought that it referred to financial decisions making.

After some discussion, Mr Chaane suggested that the first sentence be deleted, so 5.1 should start “The provincial Treasury should be well resourced”. Members agreed.

Mr Chaane suggested that 5.2 could be deleted, as it was in the previous report.

Mr Mashile thought that 5.3 was repeating some of what was in 5.1.

Mr Lees thought that there was a difference; 5.1 spoke of treasuries being resourced but 5.3 spoke to them exercising their mandate. Members agreed to retain both paragraphs.

The Chairperson asked that “improve” replace the phrase “ beef up” in paragraph 5.4.

Mr Chaane asked whether paragraph 5.5 meant that the plans were not proper. The Members had been worried about the credibility of some of the budgets, not whether the plans were proper. He believed that the planning could be said to be proper in the sense that the prescripts of National Treasury had been followed, and thus suggested that this paragraph could be deleted.

Mr Mashile differed on this point. This was not a general statement but related to the part of their planning that was not proper in the sense that funds were not being moved to service delivery, but were being “stashed”. The Committee was trying to stress that money was being put to these accounts, instead of being used for services as set out in the business plan, because poor planning had resulted in the provinces not being ready to spend on the intended services at the time when the money was transferred. A prime example was the hospital in Kimberley.

The Chairperson said that the Members must be consistent. They had agreed to take out paragraph 4.6.

Mr Chaane said that the Committee must be quite clear on this point in the written report, as it could not explain its intention to the provinces.

Mr Lees suggested that the sentence should read along the lines of “Provinces should ensure that the implementation of programmes is done on time to prevent the funds being invested in savings account and thus compromising the delivery of services.”

Mr Montsitsi said that 5.6 was addressing something similar, but here the responsibility was being put on provincial treasuries to monitor the spending of the funds on service delivery. For this reason, he thought that 5.5 could be deleted, and 5.6 remain. He thought it was quite strong already, but he would not have an objection to strengthening it.

Mr Mashile thought that the Members were missing each other. The problem under 5.5 was the transfer of money to a department who then, instead of immediately spending that money on service delivery, put the money into an investment account. He pointed out that the departments should have done proper planning so that at the time the money was paid over, the department was up to date with the business plan and the money could be paid out. The plan must talk of sourcing the funds and the implementation on the ground. Business plans were being prepared, but what was happening in practice was that there was not implementation on time and in line with those business plans. The departments would then invest the money, and still claim that there was a challenge with procurement.

Mr Montsitsi agreed with Mr Mashile's statement of the position, but said that 5.6 was asking provincial treasuries to monitor this position. He thought that it would be tautologous to have both 5.5 and 5.6.

The Chairperson thought that the two paragraphs could be combined, so that the recommendation referred to monitoring of money being spent wisely.

Mr Chaane thought that if 5.5 was to remain, then perhaps the planning and capacity must be linked. Money would always come to the programmes and pass through the accounts, whether under the conditional grants or the equitable share. The point was that the money should not remain in those accounts. Capacity to implement the plans was more problematic than planning, and he would like to see emphasis on the implementation, rather than plans.

Mr Lees repeated his re-phrasing and Members indicated that they were happy to use that phrasing.

Mr Mashile said that he was happy that 5.6 could then remain as it was stated.

Members agreed on 5.7, but Mr Mashile suggested that the Committee should call upon provinces to reconsider and reign in the use of consultants, and concentrate on building internal capacity. This would apply to all provinces, as the Western Cape position had been captured in the report already.

Mr Mashile questioned whether National Treasury would be able to deal with the matters under 5.8. Members confirmed that it was to be a joint responsibility of national and provincial treasuries.

Members agreed to paragraph 5.9, provided that it started “The provincial departments, particularly those of education in Gauteng and Western Cape” as this recommendation was specific to education issues.

Mr Mashile and the Chairperson commented on paragraph 5.10. They thought that there must be programmes for bursaries, but there must be a phasing out of the re-direction of funding to the bursaries. It was not the bursaries themselves that were the issue, but Free State had redirected money from all over, which was problematic.

Mr Joseph suggested that the last part of 5.10 be removed, after “bursary allocation process”.

Paragraph 5.11 was agreed to, as well as 5.12

Members unanimously adopted the Report, as amended.

Adoption of Minutes
4 March 2014
Members adopted the minutes of 4 March, without amendments.

5 March 2014 (joint meeting with Standing Committee)
Members agreed to the Minutes, with no amendments.

5 March 214 (second meeting on Financial Management of Parliament amendment Bill)
Members agreed to the minutes, without amendments.

11 March 2014
The Chairperson noted that the objections that Mr Lees had raised at the meeting were noted in the minutes, on page 3.

Members adopted the minutes, without amendments.

Minutes from previous day
Mr Montsitsi noted that a correction was needed to the minutes adopted on the previous day, when he was wrongly indicated as a member of COPE.

Legacy Report
The Chairperson said that the Committee would consider the draft Legacy Report later in the day.

The meeting was adjourned.


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