Conditional grants expenditure in 2014: overview and analysis

Meeting report

Overview analysis on conditional grants expenditure
The Committee Content Adviser Adv Mongana Tau and the Committee Researcher Ms Yolanda Brown provided the Committee with an overview of conditional grants expenditure.

Mr Tau said the conditional grants spoken to were Schedule 4, 5, 6 and 7 grants. Schedule 4 grants were allocations to provinces to supplement the funding of programmes or functions funded from provincial budgets. Expenditure of Schedule 4 grants did not form part of National Treasury’s in-year monitoring reports. Examples of Schedule 4 grants were the Comprehensive Agriculture Support Programme Grant, the Education Infrastructure Grant and the Provincial Roads Maintenance Grant. Schedule 5 grants was funding that was provided for a specific purpose. National Treasury published expenditure reports with regard to Schedule 5 grants on a quarterly basis. Examples of Schedule 5 grants were the Ilima/Letsema Project Grant, the Community Library Services Grant, the Dinaledi Schools Grant, the HIV and Aids (Life Skills Education) Grant and the National School Nutrition Programme Grant. Schedule 6 grants were allocations in kind to provinces for designated special programmes. Expenditure of schedule 6 grants did not form part of National Treasury’s in-year monitoring reports. Schedule 7 grants were unallocated funds for provinces for disaster response.

Ms Brown continued with specifics on expenditure figures for specific grants over the five year period under review 2009/2010 to 2013/14. Specific mention was made of expenditure figures for the second quarter of 2014/15. Some statistics given was that Schedule 5 Agricultural grants registered expenditure figures of above 90% on average in provinces for the five year period under review. For the second quarter of 2014/15 expenditure was well below the 50% benchmark that was set. The Ilima/Letsema Project Grant and the Land Care Programme Grant: Poverty Relief and Infrastructure Grant were the grants which made up the Schedule 5 Agricultural grants. Furthermore under Basic Education Schedule 5 Grants, the National School Nutrition Grant and the HIV and Aids (Life Skills Education) Grant registered expenditure of 90% and above on average in the provinces for the five year period under review whilst the spending performance of the Dinaledi Schools Grant and Technical Secondary Schools Recapitalisation Grant lagged behind at an average of 84% and 69% respectively.

The Committee was given a breakdown of percentage expenditure by each province for the second quarter of 2014/15. For instance the Ilima/Letsema Project Provincial Grant had a national average expenditure of 33.2% which was well below the 50% quarterly expenditure benchmark for the second quarter of 2014/15. However the North West Province did spend 58.1% of its grant allocation compared to most of the other provinces’ figures being well below the benchmark. The Land Care Programme Grant registered the most improved spending of all the Schedule 5 grants by the end of the second quarter of 2014/15, the national average amongst provinces being 47.9%. The Gauteng Province was the best performer with expenditure on the grant sitting at 82.2%. Provinces performed poorly on expenditure on the Dinaledi Schools Grant for the second quarter of 2014/15 with the national average expenditure sitting at 24.7%. The Eastern Cape and Western Cape Provinces were the only provinces spending within reach of the quarterly expenditure benchmark of 50%. The rest of the provinces needed to review their spending plans if they wished to expend the grant funding in full by financial year end. The seven grants that registered the least expenditure at the end of the second quarter 2014/15 were the Health Facility Revitalisation Grant (36.7%), the Ilima/Letsema Project Grant (33.2%), the Community Library Services Grant (33.0%), the Mass Sport and Recreation Participation Grant (32.4%), the Dinaledi Schools Grant (24.7%), the National Health Insurance Grant (24.4%) and lastly the Technical Secondary Schools Recapitalisation Grant (20.7%).

Mr Tau highlighted grant system challenges. These were:
▪ Shifting grants from direct to indirect and from one department to another
▪ Poor planning characterised by slow procurement processes, submission of unsound plans that lack risk management or show unrealistic targets or do not show long term plans. If planning was not done timeously then spending could not take place
▪ None compliance with reporting on spending, outputs and outcomes
▪ Monitoring capacity constraints within national departments
▪ Implementation capacity constraints - lack of technical skills
▪ Poor project management that compromises quality of work done
▪ Under spending – some of the under spending were due to delays within supply chain processes, capacity constraints and service providers who fail to deliver
▪ Questionable spending such as huge expenditure spikes and transfers to implementing agencies
▪ Disjuncture between allocation and implementation.

He noted that provisions in the Division of Revenue Act on the administration of grants and on the duties of national transferring officers and provincial receiving officers, the role of National Treasury for payment schedules and their amendment, spending purpose and conditions, conversion of allocations and unspent allocations and request for roll-overs.

Some proposed oversight foci for members to consider would be to call national departments before the Committee to report on financial and non-financial outcomes of grants administered by them, especially Schedule 4 and 6 grants. Provinces that should be called before the Committee regarding overall conditional grant expenditure performance, especially Schedule 5 grants, should be those provincial departments that failed to report appropriately and those that under-spent.

Discussion
Mr C de Beer (ANC, Northern Cape) noted that on the 27 March 2014 the National Council of Provinces had adjourned for elections and for the rest of 2014 the Appropriations Select Committee had not engaged on grants expenditure. In the presentation a recommendation was made that nine provincial treasuries together with National Treasury should be invited before the Committee. The intention was that the Committee should be informed on what the overall fiscal position was and what the spending patterns were. The chairpersons of finance committees in the provincial legislatures should also be invited to appear as it would tighten up oversight. This should be done on a quarterly basis.

The Chairperson agreed with Mr de Beer and noted the urgency to prioritise oversight.

Ms C Labuschagne (DA) also agreed with the comments made by Mr De Beer. She emphasised the importance of chairpersons of provinces appearing before the Committee. She asked why the presentation had focussed on the second term of 2014/15 figures when the third term’s figures were better. She proposed that when the Committee considered the third term’s conditional grant expenditure figures the Committee should focus on those provinces that were not doing well. She asked whose responsibility was it to overcome the grant spending challenges in the provinces and those experienced by National Treasury.

Ms Brown responded that the focus of the presentation had been on the second term 2014/15 because the information had been available whereas the third term figures had not. The third term figures or information had only appeared on the National Treasury website two weeks ago.

Adv Tau responded that it was the responsibility of the Committee to raise the highlighted challenges with National Treasury and the sector departments. The Committee should also make recommendations which the Executive should implement. 

Mr M Rayi (ANC, Eastern Cape) supported the recommendation that National Treasury amongst others should appear before the Committee to improve oversight but also to exchange information. Members met with departments on a regular basis; hence there needed to be an exchange of information.

Mr V Mtileni (EFF, Limpopo) was also supportive of suggestions made by Members and further suggested that a forum be established where chairpersons of portfolio and select committees could exchange ideas and share views on what was happening. He welcomed the presentation and referred specifically to the situation in the Limpopo Province. There had been a serious intervention by government in the Limpopo Province. Administrators that had been appointed were costing the state a great deal of funds but people at grassroots level were not on the receiving end. Budgets were not always spent by departments and the Committee needed to look into this.

The Chairperson suggested that perhaps the Select Committee on Finance could discuss the progress made by the Limpopo Province.

Adv Tau replied that when sector departments appear before the Committee, clarity could be sought on the Limpopo Province intervention.

Ms E van Lingen (DA, Eastern Cape) was concerned that there were no quarterly reports for Schedule 4, 6 and 7 conditional grants as there were for Schedule 5 conditional grants. How was the Committee expected to do oversight? There were provincial departments which bothered her. For example, there were five in Limpopo Province and one in the Eastern Cape. How did they function?

Mr de Beer noted that Ms van Lingen’s concern was the very reason why he had suggested that provincial treasuries be invited to the Committee on a quarterly basis. He noted that reports were available at provincial legislature level in provinces.

Adv Tau said that the reporting on conditional grants on a quarterly basis could be discussed with the Executive. Such a recommendation could be worked into the Division of Revenue Bill. 

An ANC NCOP Member of Parliament, sitting in on the meeting, pointed out that there seemed to be a disjuncture between allocations and spending. Conditional grants were important in uplifting education and farm schools in particular needed grants to tackle the lack of infrastructure. He stressed that if the Department of Public Works was the implementing department then the project manager needed to be from the Department of Education.

Adv Tau, on the issue of disjuncture, replied that during the budget process there would be interactions with ministers and departments. Clarity could also be sought from National Treasury about the policy for project managers. 

The Chairperson stated that Members needed to agree that in the current financial year the Committee would engage vigorously on oversight and strengthen coordination with other parliamentary committees. The Committee needed to identify which provinces were not performing and how perhaps the Committee could assist them. The Committee could jointly with the Select Committee on Finance tease out issues.

The Committee Secretary briefly explained how the previous Committee had dealt with the monitoring of conditional grants. He noted that the Committee had identified where the problem was and thereafter it would invite National Treasury, the relevant sector departments and provinces to address the Committee. He did emphasise that a major challenge was the time constraints faced by the Committee. The previous Committee had dealt with conditional grants in the period from July to October. He pointed out that the fiscal positions of provinces were dealt with by the Select Committee on Finance.

The Chairperson stated that the Committee could deal with the detail of how it should do oversight in its management meeting. There needed to be a qualitative improvement in the manner in which financial matters were dealt with. The Committee needed to prioritise this in its next management meeting.

He added that the Financial Fiscal Commission also did a great deal of work on conditional grants. National Treasury reformed conditional grants on an annual basis. 

Committee Minutes
The Committee unanimously adopted minutes dated the 26 November 2015 unamended.

The meeting was adjourned.