National Treasury briefing on unauthorised expenditure requested by DoE, Social Development, Water Affairs & DWCPD

Meeting report

Open remarks by the Chairperson

The Chairperson welcomed Members and participants to the meeting and indicated that the purpose of meeting was to hear the briefing by National Treasury (NT) on the unauthorised expenditure requested by the Department of Social Development, Department of Water Affairs, Department of Energy and the Department of Women, Children and People with Disabilities.

Briefing by National Treasury

Ms Marissa Moore, National Treasury Chief Director: Urban Development and Infrastructure Public Finance,stated that the purpose of the presentation was brief the Committee on the  over expenditure on the Integrated National Electrification Programme ( INEP) conditional grant in the 2010/11 financial year. The DE incurred an unauthorised expenditure to the amount of R14.86 million due to over-spending on the in 2010/11. The unauthorised expenditure arose as a result of a payment of the INEP conditional grant to Mthonjaneni Municipality and this payment was rejected in March 2010 and carried over to the 2010/11 financial year.

The NT had engaged with the Department and they had responded that this occurred under exceptional cases as the Department’s financial system were in a transition state and not yet finalised after the separation from the Department of Minerals and Energy (DME). In addition, at that time the payment was made to a municipality for the INEP was to the incorrect banking details as the name of the Municipality had changed.The payment was eventually paid in the 2010/11 financial year which led to an over expenditure on that particular programme and the cause was on the failure of the Department to request rollover so that the money could be appropriated in the correct financial year.

The Chairperson asked for the reason the Department did not request rollover so that the money could be appropriated in the correct financial year.

Ms Moore replied that the book was being finalised in the central administration of the DME but the problem with payments ended up in the DE. The underlying problem was in the miscommunication with the shifting of the departments in terms of administration functions.

Mr M Hlengwa (IFP) sought clarity on the claim thatthe Mthonjaneni Municipality had been changed as he always knew that the Municipality had remained unchanged.

Mr Justin Daniel, DE Chief Director: Facilities Management Services,replied that the name change from the bank was from “Municipality” to “Munisipaliteit” in Afrikaans and this technically did not get accepted on the verification process.

The Chairperson asked whether there was anyexplanation on why there was a change from “Municipality” to “Munisipaliteit” in Afrikaans.

Ms Moore replied that indeed there had been inefficiency in both the Department of Energy in terms of financial management system; however, those problems had been fixed and the Department had given the NT an insurance that the misalignment was only due to separation from the DME. She emphasised that the State did not incur any loss as the money was eventually allocated to the Municipality for theINEP but in the books of the Department the money was not properly accounted for which then reflected as over-expenditure.  

Briefing by Department of Social Development (DSD)

Mark Bletcher, Health and Social Development, NT, indicated that the DSD had an unauthorised expenditure in respect of social assistance grants in the 2007/08 financial year. The DSD over-spent their social assistance budget of R57.7 billion by R26 million in 2007/08. In a submission for a rollover request from the 2006/07 financial year to 2007/08 financial year the DSD included an amount of R99 770 million to provide for the payment of an outstanding social assistance invoice in respect of the Eastern Cape. The rollover request was not approved because of a projected saving at that stage and the invoices were therefore paid out of the 2007/08 financial year’s budget allocation. The DSD over-spent by R26 million and this was reported as unauthorised expenditure in the 2007/08 Annual Financial Statements. The over-expenditure of R26 million represents 0.05% of the social assistance budget.

It was impossible to forecast exactly how many grants will be paid in any given year, and at best the DSD’s budget forecast are within 1% of actually. Thus the 2007/08 forecast was fairly accurate; except that it resulted in a slight overspent. This overspent however cannot be related to any negligence or lack of oversight and thus cannot be recovered from any person and should be regarded as a direct charge against the National Revenue Fund (NRF). The amount was still reflected in the consolidated Annual Financial Statements of the DSD for the 2011/12 financial year.

Mr M Booi (ANC) asked whether the difficulty to forecast the number of grant which will be paid in any given year meant that inefficiency should be accepted as part of the trend as the presentation offered no strategy in place to address the problem of unauthorised expenditure of R26 million.

Ms N Khunou (ANC) also expressed similar concern about inefficiency and poor planning from the Department as stated that it was impossible to forecast exactly how many grants will be paid in any given year. She suggested that the DSD needs to consult Stats SA and the Department of Home Affairs (DHA) so as to be able to predict household income and the number of people living in poverty.

Mr Bletcher replied that there was a lot of information available from Stats SA, South African Social Security Agency (SASSA) and the coordination between the departments.However, the biggest problem remained on the inherent unpredictability by recipients in uptake and this was extremely difficult to manage in the system as it depends on how many mothers brought their children to the registration point. The Department explored the possibility of placing a cushion above the base projection for unpredictability or uncertainty as even a 1% cushion will result close to R1 billion unauthorised expenditure and this was a huge amount of money that would be unused if the Department had a cushion. As time gets very tight as doing so in the current budget, the Department will have a smaller cushion but once decrease the cushion then what emerges was once again the problem of unpredictability in social grants uptake and this was a huge dilemma for the Department.

Ms Khunou asked whether the problem of unpredictability in the social grants update was linked to the new uptake or those who are already in the system. 

Mr Bletcher replied that the problem was predominantly in the new uptake in social grants as this was clear in the current financial year where 500 000 people were taken off the social grant system during the reregistration process. However, some of those people will come back but it was still difficult to predict the number of those who will come back and this is mostly the case in the Child Support Grant (CSG) where there were currently 18 million children benefiting. 

Ms Booiindicated that the model of uncertainty was problematic as there was no strategy in place to deal with this uncertainty as was often caught as unauthorised expenditure by the Auditor-General (AG).

Mr Hlengwa stated that he finds it difficult to accept the blanket statement of unpredictability as the alpha and omega of this problem as it points to poor planning considering that the country just had a Census which gives enough information on the number of people who fall below the poverty line.

Coceko Phakade, Director-General (DG), DSD, said the Members raised valid points but needed to recall that when SASSA was established in 2006, the Department had an enormous time that was invested to develop the tools to deal with this uncertainty in the social grant uptake. The Department attempted to design a projection model taking into cognisant of the poverty threshold trends in Stats SA and other reliable sources. The complexity also arose in the fact that in the 2007/08 financial year, the Government took the decision that the CSG must be increased to 18 years old and this period was an incremental year. The Department now has the best tools to monitor the social grant uptake and emphasized to the Members that there had not been any similar situation since 2008. 

Mr Booi reminded that Mr Bletcher pointed out that it was impossible to forecast exactly how many grants will be paid in any given year and this was widening the gap between what the NT was saying and the Department.  Was there assurance that the unauthorised expenditure in respect of social assistance grants will not happen again in future?

Mr Hlengwa asked whether there was a plan in place to deal with the fluctuation in the number of people taking social grants. What linkages are there with Sector departments to ensure that the correct recipients are receiving the grants?

The Chairperson remarked that Members needed to bear in mind that it was an unauthorised expenditure in the 2007/08 financial year and since to date there had been no unauthorised expenditure.

Mr Booi said the National Development Plan (NDP) puts it clear that planning was the key for the Government to be able to execute its key policies to address unemployment, poverty and inequality. The presentation by the Department showed lack of planning and failed to come up with assurance that this type of problem will not recur in the future.

Mr Phakade responded that when the Department is developing models it often takes into consideration of what could possibly go wrong and the parameters to be effected into the model.The Department also monitors the people who might have been taken out of the social grant illegitimately during the reregistration process so as predict the number of those who were likely to come back. It was critical important for the model to be able to reduce the margin of error in the future projections.

Mr Tsakeriwa Chauke, Acting Chief Financial Officer (CFO), SASSA, indicated that the system of the Department was integrated to that of DHA, South Africa Revenue Services (SARS) so as to check the employment status. He mentioned that the CSG was a default grant as a lot of times there are children in the system who are supposed to be on foster care, or disability grant and these factors need to be taken into consideration as contributing to this unpredictability. The reregistration process targets toeliminate fraudulent recipients in the system but not all those grants that had been cancelled were as a result of fraudulent activities  but might be due to lack of proper documentation. 

Mr E Kekana (ANC) said he was worried that there was lack of coordination and consultation between the two departments and this needs to be clarified.

Mr Phakade responded that the DSD meets frequently with the NT as Treasury has deployed specific individuals that monitor financial management.

Mr Chauke added that SASSA meets with the DSD and NT on a quarterly basis in order to discuss the trends in the uptake of social grants and the strategic response to the fluctuations and the level of unpredictability. The DSD was currently busy with consolations with the NT in order to deal with the phasing out of the means test for the Old Age Pension (OAP) as this would have a huge financial implication for the Government. 

Briefing by the Department of Water Affairs (DWA)

Ms Margaret Diedricks, Director General, DWA, said the Department had an unauthorised expenditure to the amount of R3.783 million incurred in 2005/06 financial year. The Treasury has reviewed the findings of the Auditor-General (AG) and explanations provided by the DWA. It appears that the unauthorised spending in question arose as a result of inadvertent breaches of expenditure limits on a research study, purchases of goods and services and regional service council levies. Since there is no evidence of impropriety, wasteful expenditure or losses to the State, NT recommends that the unauthorised spending of R3.783 million be condoned and that it be provided for in a Finance Bill as a direct change against NRF.

Mr Booi asked if there were mechanisms in place to deal with transitions as the Cabinet had grown and there was always a possibility that some of the departments would be merged. There is a need to emphasize that unauthorised expenditure creates bad impression to the general public as often assumed that there is either inefficiency or corruption.

MsNthabisengFundakubi, DWA Chief Financial Officer (CFO), responded that it was correct that the Department should be more vigilant especially when there is shift in functions between the departments and the NT will take lead in  that caution. It is important to point it out to the general public that unauthorised expenditure did not always imply that there was corruption as it was sometimes just the matter of error in the basic financial accounting.      

Ms Diedricks responded that it was important for the Department to take responsibility and claim that the over-expenditure should not have happened as should have been pre-empted. The Department needs to work closely with NT so as to be able to seek the approval in time as this was not the case in the over-expenditure and the NT needs to alert the Department on where the anomalies emanate especially in regard to basic financial accounting. She added that since to date, the Department has not had any unauthorised expenditure as managed to put measures in place to ensure that it does not recur in future.

The Chairperson asked whether there was a particular reason that the Department omitted the unauthorised expenditure on programme 3, forestry (R778 million).

Mr Diedricks corrected that it was R778 thousand not million as stated in slide 5 of the presentation and added that it was made up of R3.782 million when adding the other unauthorised expenditure of R3.004 million on programme 3 (water services) and it was at the time of Department of Water and Forestry (DWF).

Briefing by the Department of Women, Children and People with Disabilities (DWCPD)

Ms Gillian Wilson, National Treasury Chief Director (CD): Public Finance, said the DWCPD incurred an unauthorised expenditure for the 2010/11 financial year. The DWCPD had a budget of R106.192 million for the 2010/11 financial year, as at the end of March 2011; the Department had overspent its budget by R3.729 million (4%). The overspending was mainly attributable to telecommunications, travel and accommodation costs. The bulk of other overspending was under programme1: Administration where the Department overspent by R8.830 million (31% of its final appropriation) and the overspending was a result of mandatory overseas trips by the Minister and 9 delegates for the average period of 14 days as well as payment to stakeholders that were not initially provided for.

The function of hosting National Women Day in Cape Town was shifted from the Department of Arts and Culture (DAC) to the DWCPD. The DWCPD was under the impression that funds allocated for this function would also be shifted but this did not happen. The DAC did not have a special allocation for National Women Day but used its baseline to fund this function and it is for this reason that the DOAC did not shift its funds to the DWCPD. The DWCPD also had to cover costs for the delegation that attended the United Nations Commission on the status of women conference which had not been sufficiently budgeted for. The Department could have avoided the over-expenditure by putting control measures in place, looking at the number of delegates attending the conference and the NT recommends that the over-expenditure should fall under the DWCP.

Mr Booi was interested in the solutions to be put in place by the NT to ensure that this problem is prevented from recurring again. Is there a methodology in place to deal with transitions as the functions of the DWCP had now been transferred to the DSD?

Ms Wilson responded that NT had developed a turnaround plan with the Department to ensure that over-expenditure was avoided from recurring in the future. 

Mr Hlengwa remarked that the recommendations to take from the NRF entrenches patriarchy of the highest order as the political dynamics of the Department is to empower women, children and people with disabilities. He said it was unfair to criticise the Department on the recklessness of the then Minster of DWCPD, Ms Lulu Xingwana. What actions were taken by the Department after the unauthorised over-expenditures? Were these expenditures within the parameters of the law? The Department must also take responsibility for overspending considering its limited resources as it was clear that theoverseastrip taken by 9 delegates for 14 days was flamboyant expenditure. The Department needed to deal with the problems in the grassroots instead of gallivanting in overseas trips.  

Ms Wilsonsaid the Members needed to take into consideration of the conditions under which the over-expenditure occurred as the NT warned the Department about the possibility of over-expenditure but the Department still went ahead with the activities they had planned. There were no systems in place to ensure that the Department was spending within the limited budget.

The Chairperson corrected that the person who recommended the Department to take from the NRF was a woman therefore cannot have patriarchal tendency.  

Mr Kekana indicated that the Members should not be construed as taking the side of the Department and therefore condoning the over-expenditure as the Department also needed to take the responsibility and put systems in place to avoid the recurrence of the unauthorised expenditure.

Ms Veliswa Baduza, Director General, DWCPD, pointed out that there was a typo on slide 4, second bullet, as “without” was supposed to be replaced by “with”. The 2010/11 Annual Report of the then Department shows that the Department was mismanaged and the key programmes responsible for financial management was non-existent as the Department relied on the Presidency’s cooperative services. The AG also pointed out that there was no risk management, internal audit, and Audit Committee and including the monthly reports. The functions of the DWCPD had now been transferred to the DSD and there were negotiations on the support functions to be transferred to the DSD as an established Department.

Mr Booi echoed that there was no justification for the overseas trip taken by the Department’s delegates as there were still poor women in rural areas who were desperate for assistance.  

The Chairperson thanked all the delegates presented in the Committee and appreciated the contribution from the Members as this was an important exercise for the Committee to make recommendations to the Parliament.

The meeting was adjourned.