Appropriation Bill: briefing by Public Service Commission

Standing Committee on Appropriations

14 July 2014
Chairperson: Mr P Mashatile (ANC)
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Meeting Summary

The Committee was briefed by the Public Service Commission (PSC) on the 2014 Appropriation Bill. After introductory remarks, an overall assessment of the Bill was presented with links between the Bill and the principles of efficiency, economy and effectiveness were highlighted. These links formed the crux of the briefing. The Commission also presented on spending areas where efficiencies may be realised and opportunities with significant potential for value for money. The briefing also looked at potential strategies for finding efficiencies in the public sector wage bill and the extent to which the 2014 Appropriation Bill responded to government priorities.

During the discussion, Members were deeply concerned that the data presented proved that although departments were spending their budgets, many were not achieving satisfactorily levels of their targeted priorities/outputs. Members questioned whether there could be punitive measures instituted against this and general non-compliance. The link between this discrepancy and possible corruption was also highlighted by a Member. The limitations of the Bill were questioned along with dates for commencement and ending of PSC studies mentioned, funded vacant posts and the use of consultants. The discussion also raised points relating to the sustainability of employment opportunities for the Extended Public Works Programme and Community Public Works Programme, delays in government payment to contractors, the need for a reassessment of the evaluation of Heads of Department and service delivery models. Members also questioned the possibility of a skills audit and the need for standards when departments were setting targets. 

Meeting report

Apologies

Mr N Gcwabaza (ANC) was standing in for the Chairperson who was late. He called for apologies.

Mr Darin Arends, Committee Secretary, noted the apologies for Mr G Gardee (EFF) and Mr N Kwankwa (UDM). 

Mr M Figg (DA) asked if these Members would be absent from the entire meeting or if they were just late.

Mr Arends clarified these were apologies for being absent for the entire meeting. 

Adoption of Committee Agenda

The Committee adopted the agenda for the day’s meeting. 

Briefing by Public Service Commission (PSC) on the 2014 Appropriation Bill

Mr Richard Levin, Director-General, PSC, explained that the entity was a constitutional body established in chapter ten. The chapter laid out the values and principles governing public administration including efficiency, economy and effectiveness. 

He noted that the briefing was requested by the Committee on the link between the 2014 Appropriation Bill and the principles of efficiency, economy and effectiveness, identifying spending areas where efficiencies may be realised, identifying opportunities within national government with significant potential for value for money, potential strategies for finding efficiencies in the public sector wage bill, the extent to which the Bill responded to the key areas raised in the 2014 State of the Nation Address and the extent to which the Bill began to mirror the National Development Plan (NDP) priorities. The PSC did not have readily available information on all the areas outlined for the briefing so external data sources were used from National Treasury, the Department of Performance Monitoring and Evaluation (DPME), annual reports, Vulindlela and developmental indicators. Not all areas highlighted in the Committee’s briefing request could be addressed because of the availability of information although the presentation placed focus on all national departments as reflected in the Appropriation Bill.

Looking at an overall assessment of the 2014 Appropriation Bill, the Bill aimed to find a balance between the compensation and goods and services budget. It was a strategy to manage the public sector wage bill which would be a major challenge to the fiscus in the coming months. In terms of the limitations of the Bill, it did not take into consideration the announcement of new departments like that of Small Business Development and Telecommunications and Postal Services. Similarly the Bill did not anticipate the movement of functions such as planning from Treasury to DPME and Children ad People with Disabilities to Social Development. The Bill was limited by the merger of certain ministries like Correctional Services with Justice and Constitutional Development.

Mr Levin explained there was a link between the concepts of efficiency, economy and effectiveness and value for money. Efficiency was about the relationship between inputs (resource use), or the cost of that input, and output. Effectiveness was about achieving the intended effect or outcome. Value for money similarly referred to the relationship between resources expended and the value of the outputs and outcomes produced. One could also talk about cost- effectiveness in this sense. Therefore, the two questions posed in the brief were treated together – these questions were (1) identifying areas where efficiencies could be realised and (2) identifying opportunities with potential for value for money. Economy was about the cost of inputs and since salaries were the biggest input, it would be addressed under “strategies for finding efficiencies in the public sector wage bill”.

A key indicator was the relationship between the percentage of outputs achieved and the percentage of budget spent. This was not a direct relationship but more of a correlation in the sense of knowing that if we spend x amount we will receive x number of additional outputs. Since the indicator also measured whether pre-determined objectives, or targets, had been achieved, rather than the number of outputs, the indicator was heavily dependent on the accuracy of target setting and planning. Target setting and planning was an art which the public service had not quite yet mastered. Nevertheless, the indicator gave a good sense of the efficiency in the public service. The assurance about the accuracy of these numbers had also increased since the Auditor-General started auditing the accuracy of performance information provided by departments in annual reports. In this way, annual reports were a key source of information. The indicator did not say much about effectiveness since outcome data was seldom provided in annual reports. There was also a continued effort to improve the meaningfulness of information in the annual reports was still therefore very important particularly for this Committee. 

Turning to the numbers, the percentage of national departments that managed to achieve more than 80% of their planned targets increased from 5% to 15% from the 2011/12 financial year to the 2012/13 financial year. This could be improved although 80% was the region in which real effectiveness could be considered.

Mr Levin discussed the interesting correlation of numbers for national departments with an analysis of the % of planned outputs achieved versus % of budget spent for 2012/13 financial year. Looking at Government Communications and Information Systems, for example, one would be critical of it only spending 86% of the budget but 82% of their predetermined targets were achieved. This would make this department an efficient performer. The overarching trend was one of concern. Other good performers were International Relations and Cooperation spending 98% of its budget and achieving 80% of predetermined objections, likewise with Stats SA which spent 100% of its budget and achieving 81% of their predetermined objections and Tourism spending 100% of its budget and achieving 98% of its predetermined targets. Some of the challenging departments were Transport only achieving 53% of its outputs but spending 99% of its budget. 

Departments achieved a high level of predictability in budget spent. On average, there was a 97% spending of budgets across the board for national departments but not necessary on the targets set which was a concern for efficiency. The next challenge was to increase the efficiency of the spending and the quality of the outputs or service delivery. The % of planned outputs achieved can be increased by proper target setting (instead of thumb sucking), redesigning delivery models and processes and by performance management. Performance management should be improved on both the organisational level and individual staff assessment level with performance agreements in place. 

To improve the link between the principles of efficiency, economy and effectiveness, there needed to be a careful design of organisation structures to better align responsibility, authority and accountability. On the level of individual staff assessment there were many problems with the Performance Management Development System (PMDS) system both on a compliance level and the more fundamental level of whether the system objectively measured performance. The area of performance management was where most grievances were lodged with public service for the financial years of both 2011/12 and 2012/13. Executive authorities and HODs should visibly supported performance management processes and should ensure this cascaded down to other levels of the Senior Management Service (SMS) if the principle of accountability was to be achieved in the public service.

Mr Levin discussed the evaluation of HODs and noted there had been a steady improvement in the number of HODs evaluated over the past five years. However, it was concerning that no HODs were evaluated during the 2012/13 financial year despite the fact that 65% of performance assessments were submitted. It should be noted that the HOD evaluation function was not allocated to the PSC in the latter financial year. There was a great challenge in the performance management of HODs especially given that the performance of HODs was a reflection on the whole department as this was the ultimate level of responsibility.  Looking at the percentage trend of the evaluation rate, in 2009/10, there was a 13% evaluation rate of HODs and although this was an election year and there were many changes, the increase to 26% in 2010/11 was still not looking too good. If performance management was to be used as a driver of efficiency, there was a need to ensure performance evaluation of departments starting from the HODs down was more vigorously implemented. Overall there had not been improvement in the compliance rate for the submissions of performance agreements with a 62% submission rate in 2009/10, a low 44% in 2010/11 and 85% in 2011/12.

Turning to spending areas where efficiencies may be realised and opportunities with significant potential for value for money, the PSC found it challenging to address this part of the briefing due to the lack of information available and in future pleaded for four weeks to prepare a presentation instead of two. The financial information was available to, in future, do simple ratio analysis that could compare efficiencies/value for money between programmes. For example, cost of administrating social grants: value for transfers to individuals; cost of administering housing programmes: value of housing grants; cost of administering the land reform programme: cost of buying land and settlement of farmers and cost of administering jobs programmes: value accruing to individuals like wages and training (or alternately cost per job created). Generally, information on efficiencies was not readily available and departments should be encouraged to set efficiency indicators as the ratios described above. There was not a close link in the way expenditure information and output information was captured making it difficult to directly link cost to benefit and this should be a focus area for DPME moving forward.

Mr Levin said the National Evaluation Plan of the DPME included some cost-benefit analyses to enrich the info available to decision-makers. It was also important that micro efficiencies were addressed like the payment of invoices and service delivery turnaround times because these were also good indicators of general administrative efficiencies in departments. Looking closer at the payment of invoices, on average in 2012, 22 902 invoices were paid after 30 days while 13 898 invoices were not paid after 30 days. On average in 2013, 30 894 invoices were paid while 13 172 invoices older than 30 days were not paid. Looking at the Rand value of these invoices, in 2012, R451 339 119 was the Rand value of invoices paid after 30 while R304 561 332 was the Rand value of invoices not paid after 30 days, in 2013, R501 221 079 was the Rand value of invoices paid after 30 days while the Rand value for invoices not paid after 30 days was R195 027 317. Late payment of suppliers negatively impacted on the sustainability of SMMEs with effects of liquidation and acquiring credit lines with unscrupulous credit lenders. Far greater efficiency needed to be seen in this regard.

Some of the reasons provided by departments for late payment of invoices included delay in the submission of invoices for processing by suppliers, inadequate budgets/cash flow management, inadequate internal capacity, IT systems issues, late submission of banking details by suppliers, unresolved invoice discrepancies and incomplete supporting documents. The majority of the above mentioned reasons were either internal to departments or related to factors that should be rectifiable on the parts of departments so more proactive action was required by them.

Mr Levin moved onto the complex matter of potential strategies for finding efficiencies in the public sector wage bill, noting the wage bill depended on the number and grading of posts on the establishment and wage levels. The number and grading of posts on the establishment depended on the service delivery model as the labour intensity would differ according to the model, the structure of the establishment, for example, the ratio between senior management, middle management, supervisory and production level posts or the ratio between professional, technical, skilled and unskilled categories of posts. There may be significant creep between these categories, the wage bill will increase. Wage levels depended also on productivity levels, labour market conditions and the labour relations environment. The PSC was undertaking a study on the wage bill in collaboration with the Financial and Fiscal Commission (FFC).

To advise on managing the wage bill, the PSC could also monitor post establishments, going forward, especially when last departments’ establishments had been subjected to a thorough review, whether establishments were based on rational post provisioning norms and whether alternative service delivery models could not fundamentally change the labour intensiveness of some public functions.

There should also be management of the appointment of consultants additional to the establishment of the organisation. There were many ways of viewing consultants where on the top end there were critical skills needed and toward the bottom end, the outsourcing of services like cleaning. The use of consultants and contractors should ultimately be guided by departments; service delivery (business) models. Patterning with the private sector through the use of consultants can be beneficial in terms of skills and innovation they bring into the public service and can increase efficiency if used as part of such a model. It was not easy to say the use of consultants were either good or bad but the reasons for their use needed to be considered. The preliminary findings of the current PSC study on the role of outsourcing in service delivery showed that, although 23% of the sampled departments indicated that they had service delivery models in place, copies could not be obtained and departments could not explain what the models entailed.

Mr Levin discussed the extent to which the 2014 Appropriation Bill responded to government priorities. On the priority of the creation of job/work opportunities, there was a minimal increase for the Expanded Public Works Programme (EPWP) while there was a substantial increase for the Community Works Programme (CPW). Most the employment opportunities for the EPWP was within the infrastructure sector within the major investment periods of 2004-2009 and 2010-2012.

For the priority of rural development and land reform, there was a significant budget increase allocated for rural development and a sharp decline for restitution and land reform. For the education sector, the Bill reflected an increase in the allocation for resourcing of 370 new schools, 12 new Further Education and Training (FET) colleges and the re-opening of teachers colleges. However, the budget did not make provision of the R9 billion allocated to the National Student Financial Aid Scheme.

Similarly to the education sector, the budget allocation for health showed a minimal increase for 300 new health facilities, 160 new clinics and 10 new hospitals. In terms of provisions for the re-opening and capacitating of the family violence, child protection and sexual offences units and the sexual offences courts, budget allocations for the police and Department of Justice and Constitutional Development, showed a slight increase.

In conclusion, there was a high degree in the stability and predictability in spending achieved over the past few years. The quality of performance information and performance management was improving incrementally each year. However, the sophistication of our systems to manage outcomes/impacts/effectiveness, improving value for money, identifying inefficiencies and managing the wage bill was still in the early stage of development. The budget did respond to government priorities but increases were small in line with prevailing economic conditions as there was obvious pressure on the fiscus and the need not to increase the budget deficit. In education and health there were announcements of new facilities but only modest increases in the compensation to staff in these facilities.

Discussion

The Chairperson apologised for being late to the meeting. He opened the floor to questions from Members.

Mr Figg, by way of introduction, mentioned that so far all presentations and briefings to the Committee had been good, of high quality and very informative including this one. He thanked the Chairperson for inviting presenters who gave quality presentations. He had a swarm of questions of which the first related to the limitations of the Appropriation Bill – he asked if these limitations were taken into consideration. He noticed the briefing presented serious and interesting figures such as the percentage of planned outputs achieved by national departments versus the percentage of budget spent by the departments. On this point, he felt punitive measures should be considered in this regard. When the briefing referred to the link between the Appropriation Bill and the principles of efficiency, economy and effectiveness, it was noted responsibility needed to be aligned – was the responsibility, authority and accountability mentioned there documented somewhere so that departments knew what their responsibilities were? He asked when the study on the wage bill would be concluded. When an analysis of the wage bill was discussed and specific mention was made of vacancy rates, he asked if any study was conducted on what size staff complement would make a department efficient. On the EPWP, he questioned the average size of these work opportunities as there was a concern around the sustainability of small jobs.   

Mr Justice Kgoedi, Director, PSC, explained that with non-compliance, the job of the PSC was to monitor departments and generate information and evidence to be compiled in a report to present to Parliament. Relevant Portfolio Committees should then follow up with departments in terms of oversight on dealing with issues of non-compliance. This was in contrast to an institution like the Public Protector who could take remedial action while the PSC did not have that power o remedial action reporting instead to Parliament who then followed up with non-compliance. For this reason there needed to be a close working relationship between the PSC and Portfolio Committees to ensure corrective action.

Mr Levin said the issue of performance monitoring was a contested space when discussing punitive measures and the starting point might be on the action based on the AG’s audits. The need for punitive measures was not far out there but more maturity was needed.

On the documentation of responsibility, authority and accountability, this ultimately would be documented.

For the study of the wage bill, this was quite a lengthy process with results expected by the end of the financial year. 

Shaik Emam (NFP) questioned the impact on small businesses of delays in payment from government and what would be done in terms of these delays? On the very large discrepancies between budgets and department outputs, he thought this pointed to the obvious fact that the information provided by departments was not always accurate. He asked if there was plan for a mechanism to be able to capacitate and increase output as opposed to decreasing budgets. He was concerned that HODs were not being evaluated and questioned if there was a particular reason for this. He understood that on the ground-level there was not enough compensation of staff in critical areas like in health and education. This was particularly important as departments were judged by what they did not provide as opposed to what they did provide.

Mr Levin explained the link between staff complement and efficiency was linked to the service delivery model and there were areas where there could be efficiency models depending on the size of the department. There was talk of a need for norms and standards in this regard especially where the bulk of public services resided.

On the EPWP and especially the CPWP, the kinds of employment like home-based care and early childhood development, were sustainable as sort of micro-enterprises and these were preferable scenarios. However some of the work was more once-off in nature.

Mr Levin stated the impact of payment delays was significant on small businesses.

He said the evaluation of HODs was a long-standing challenge since Cabinet first asked the PSC to lead such an evaluation. There were challenges relating to logistics and time-frame compliance. The performance agreement needed to be completed by the HOD then lodged with the Minister before being sent to the PSC by the end of June. If any of these deadlines were not met along the way, the HOD would not be evaluated.

Mr Levin observed that in some areas like health and education, there was an increase in funding allocation but not in capacity. 

Ms M Manana (ANC) asked when the study on the wage bill would commence and be concluded by. She was concerned that when asked, departments could not provide evidence on delivery models. 

Ms C Madlopha (ANC) was deeply concerned that departments spent budgets but did not achieve targeted outputs. She asked what the efficiency and effectiveness of departments were based on. Was there any proof that departments spent their budgets on service delivery outcomes?

Mr Levin explained that qualitative indicators needed to be taken into account when looking at targeted outputs and the matter was complex so there was not always a direct relationship between budget spent and outputs achieved.

Mr A McLaughlin (DA) thanked Mr Levin for the presentation but agreed that two weeks would have made the presentation that much better. He asked if red flags for corruption was raised if departments spent their budgets but did not achieve targeted outputs. When the briefing spoke to an overall assessment of the Appropriation Bill, he noticed that in many instances there were overlaps between departments and government levels – was the PSC satisfied that the Bill cater sufficiently covered for this overlap? He found that were there was an overlap in functions, this should be accompanied by an overlap in competence. On the evaluation of HODs, he did not agree that there was a steady increase in the evaluation rate. He asked if there was any action taken by the PSC on non-compliance where performance agreements were signed. Furthermore, what happened when performance agreements were not signed?  He was concerned about the decrease in budget for the EPWP while there was an increase in the budget for the CPWP. When most people were employed in positions such as street cleaners, these employees were the responsibility of municipalities (i.e. CPWP) as opposed to a provincial responsibility (i.e. EPWP) yet the decrease/increase in budget did not correlate with these responsibilities. 

Mr Levin responded to the issue of flagging corruption in the budget vs. outputs deficit, would be difficult to do or meaningfully assert. There was certain maladministration, depending on how it was defined. 

Mr Levin clarified that intergovernmental relations was a complex matter especially when it came to the EPWP vs. CPWP but this was a challenge of the intergovernmental system and was an area for definite improvement. 

Mr Gcwabaza (now the Chairperson of the meeting) found it worrying that “public service managers often felt they did not have the power to make a difference (they lacked agency)” as stated in the briefing. He asked if there was not legislation to deal with this. He was concerned with vacancy rates and asked what challenges departments were experiencing to not fulfil the presidential priority of job creation and employment. He asked what happened to the funds when funded vacant posts were not filled. Was there any assistance given to departments who failed to produce service delivery models in relation to their mandates or was the issue simply left unattended?

The Chairperson asked Mr Gcwabaza to chair the meeting as he had taken some medication which had affected him. 

Mr Levin, responding to vacancies and why departments were not able to fill vacant funded posts, he explained the filling of vacancies differed from department to department. There were administrative inefficiencies in dealing with the turnover rate with departments unable to recruit employees fast enough to fill employees leaving. In other cases there were areas of skills scarcity as in critical areas like health and social development. Departments find ways of using funds from vacancies in the establishment.     

With consequence management, Mr Levin said this came back to compliance. There was a particular year in the previous Parliament where the Committee on Public Service and Administration, named and shamed Ministers and Departments for non-compliance in the omission of performance agreements with HODs and financial disclosure forms. This was an important consequence and role that Parliament could play in raising awareness around compliance. 

Mr Levin said that with service delivery models and service delivery improvement plans, the PSC was working on the contribution of an annual report to look at the ability of departments to deliver on the values and principles outlined in section 195 of the Constitution. These were the steps to be taken to move toward consequence management and compliance. DPME was looking at improving service delivery models in a number of sectors. This was related to the roles and responsibilities of different spheres and the potential for the duplication of overlap. This was a challenge for any country in the world and not exclusive to SA. There were intergovernmental systems which service delivery models needed to recognise. The “Big Fast Results” methodology was tested in Malaysia and DPME hoped to utilise in a number of service sectors, including the health sector, to bring together the different role players in both public and private sectors, to go step by step through the service as this was essentially how a service delivery model was built to collectively deliver a service. Community engagement was critical as these were the people benefiting from services. The Constitution outlined that policy making should be done in a participatory fashion so it was important for departments to be capacitated in this vein.   

The Chairperson (Mashatile) wanted to follow up on the evaluation of HODs. He said it was clear the system of evaluation envisaged was not working and perhaps the PSC should lead in reviewing the system because evaluating HODs was a very important aspect in ensuring efficiency in the public service. More thought needed to be given to this so that it was not like flogging a dead horse.

Mr Michael Seloane, PSC Commissioner, explained the Constitution stated the PSC could issue directives on certain areas like irregular appointments where the position was not advertised or no interview took place. The Bill to empower the PSC to issue directives on all constitutional values and principles was being worked on and would still take time. This was in the initial discussion on the Bill but was then removed.

Ms Madlopha questioned if any skills audits were done in different departments to check whether the skills employed were actually relevant to the mandate of the particular department. This matter tied in with the use of consultants. She felt that if no such skills audit was done that it should be in each and every department. Majority of the budgets for departments were not actually spent on service delivery because of the lack of capacity and use of consultants instead of making use of internal capacity. 

Mr Levin indicated some departments did conduct skills audit and there was the Public Service Sector Education and Training Authority (PSETA) to which every department had to submit their workplace skills plans, what its skills interventions would be, what its gaps were, training etc. There was an initiative from the Department of Public Service and Administration to develop a skills database, called HR-Connect, where departments were supposed to continually update their skills information on every employ. This was better than a skills audit which only captured positions in a certain moment in time. A database would be the best way to establish an accurate picture of existing skills and how they were being developed to come up with improvement strategies. A skills audit for the entire public service could become an issue of mutual interest which could have unintended consequences related to negotiated bargaining.      

Shaik Emam asked if any challenges were foreseen with the establishment of new departments and mergers – if there were such challenges, how would they be dealt with? He sought documentation in order for him to get a clear picture of the different departments where there were large discrepancies between expenditure and outputs. Many Members were new so did not have such an idea. He was concerned where consultants were employed because it was considered cheaper to hire people through labour consultants. He was worried that this was a breach of labour rules and regulations and it could mean that employees were underpaid.   

Mr Seloane said the most important documents to consider were strategic plans and budget tablings with budget allocations assessed against targets outlined in the departmental strategic plans. At the end of the financial year, annual reports would paint a picture of how well the department actually performed.

Mr McLaughlin questioned non-compliance and corrective action and if some regulation could be established which was almost punitive in nature with some sort of consequence for non-compliance. With his municipal background, he knew each department was responsible for its own target setting and he thought this was part of the problem because it was easy to tick boxes. He asked if it was not better to have some sort of standard against which targets were set rather than having each individual department setting its own target. It was easy to set simple targets but it did not produce the desired result or target service delivery, there was no point to such targets. On the other hand, impossible to achieve targets could also be set with budget being spent trying to reach an unattainable goal.     When the presentation spoke to preliminary findings of the current PSC study on the role of outsourcing in service delivery, it was found 23% of the sampled departments indicated they had service delivery models in place, copies could not be obtained and departments could not explain what the models entailed – he questioned the other 77% of the sample? Was this a negative or positive measurement?

Mr Levin explained that usually standards were set for targets and indicators but this was a role for DPME to play in the future to support departments to look at, for example, departments which were struggling. It was only when going into the detail that one would find the problem areas. 

He said the PCS did a study on the work of outsourcing with quite a small sample. The study started with a questionnaire on the service delivery model circulated to the departments identified and this was how numbers were reached.

The Chairperson thanked the PSC for its presentation and noted it was invited to a strategy planning session on 28 and 29 July and they would be sent the details on this.

Adoption of Committee Minutes

Committee Minutes dated 4 July 2014

The Chairperson asked that Members check their names were recorded correctly.

The minutes dated 4 July 2014 were adopted without amendments.

Committee Minutes dated 8 July

The minutes dated 8 July 2014 were adopted without amendments.

Committee Minutes dated 9 July

The minutes dated 9 July 2014 were adopted without amendments.

The meeting was adjourned. 

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