Government Departments' 3rd Quarter 2014/15 Expenditure Analysis: National Treasury briefing

Standing Committee on Appropriations

17 March 2015
Chairperson: Mr S Mashatile (ANC)
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Meeting Summary

National Treasury (NT) presented the Third Quarter 2014/15 expenditure report, broken down to show total figures and spending of departments and clusters across government. The National Treasury said that 44 per cent of total expenditure to end Q3 was for direct charges against the National Revenue Fund. This was equivalent to R367.2 billion and includes R271.9 billion transferred to provinces under the equitable share agreement, and R76.5 billion to pay State Debt costs. Total voted expenditure was R462.0 billion  70 per cent, or R321.7 billion, of this was transferred by departments to households, other spheres of government or other organisations and agencies and 30 per cent, or R138.2 billion, was directly spent by departments on operations, mostly on compensation of employees.

Operational expenditure increased compared to the same period in the previous financial year by R9.5 billion – nominal growth of 7.4 per cent. R89.8 billion was spent on Compensation of Employees, and R40.2 billion spent on Goods and services showing a growth of eight per cent and five per cent respectively. R8.2 billion was spent on capital assets, representing an increase of 13.4 per cent. The largest portions of the capital spend were under the Departments of Water and Sanitation and Police – mainly for the regional bulk and the building and upgrading of police stations respectively. The increase was mainly also due to improved spending on the School Infrastructure Backlogs Grant under the Department of Basic Education. The departments of Women, Human Settlements and Economic Development spent 75, 67 and 64 per cent of their operational expenditure on administration respectively

A total of R323.8 billion was transferred by departments, representing growth of 8.4 per cent, R96.8 billion was transferred to households representing growth of 9 per cent, primarily for social grant payments driven by increases in beneficiary numbers and slightly above inflation increases to social grants. R116.6 billion was transferred to provinces and municipalities, representing an increase of 8 per cent. The largest share of expenditure include Local Government Equitable Share Transfer under the department of Cooperative Governance and Traditional Affairs, health grants including those for HIV and AIDS, and National Tertiary Services and the Human Settlements Development grant.

R55.1 billion was transferred to departmental agencies and accounts, representing an increase of 3 per cent. The agencies that received the largest sums were South African National Roads Agency (R8.9 billion), South Africa Revenue Service (R6.4 billion),  National Student Financial Aid Scheme (R6.1 billion) for student loans and bursaries and the South African Social Security Agency (R4.9 billion) for the administration of social assistance. R23.1 billion was transferred to higher education institutions, representing an increase of 8 per cent with the majority being for the block grants to universities. R24.7 billion was transferred to public corporations and private enterprises, representing an increase of 29 per cent. This increase was primarily under the Passenger Rail Agency of South Africa (R12.7 billion) for the rolling stock fleet renewal programme.

Expenditure lagged scheduled drawings by R2.8 billion for COGTA, Water and Sanitation was R2.8 billion, Energy expenditure lagged by R1.4 billion, Justice and Constitutional Development expenditure lagged by R1.2 billion, Trade and Industry expenditure lagged by R1.2 billion, National Treasury expenditure lagged by R1.1 billion because the jobs fund paid grant advances to only 5 out of a potential 22 projects, and Higher Education and Training expenditure lagged by R0.8 billion

Members asked questions that the spending had not reached the target of 75% expected by this stage which was an indication that overall there could be under-spending, but wide discrepancies between overspending of 111.2% in one department and 42.5% and 47.1% were of particular concerns related to Water and Sanitation and Health. Members expressed concern about under-performance at the Department of Water and Sanitation, the high staff costs and low capacity, coupled with a moratorium on posts, and did not believe its status as recently-reorganised department justified the lack of service delivery. The wage bill was ever-increasing and one Member suggested that this was unsustainable and wondered how it could be reduced, with other questions directed to how to achieve greater efficiency, particularly at local government level, where appointments were still being made of those lacking skills to perform the work. Several questioned the Jobs Fund and its slow spending, why it reverted to National Treasury although there were skills at the Development Bank of South Africa. Members were concerned that there was little spending on disaster relief. They asked why the National Youth Development Agency had received more funding, and why late invoicing and payments in the Department of Cooperative Governance. They expressed concerns that there would be fiscal dumping in the Fourth Quarter, and urged that Treasury to closely monitor payments throughout the year and encourage departments to spend timeously, and hoped the roll-overs indicated would happen, and that municipalities could be offered more assistance with planning and spending of the MIG grant. Members wanted more detailed comparisons of revenue and expenditure over the same periods in corresponding years, figures and percentages for cost of debt, the terms, and when it might best be paid off. They expressed differing views on whether it was correct to withhold money from poorly performing municipalities; some felt that this resulted in undue hardship through lack of services to more beneficiaries, others felt that it would be irresponsible to keep transferring when clearly there was lack of capacity to spend, and added that the problem was larger, indicating that capacity building in municipalities was not effective. 

Meeting report

Condolences
The Chairperson expressed the full Committee's sincere condolences at the death of Minister Collins Chabane and his security officials in a road accident the previous weekend.

Departmental spending and reporting, 3rd quarter 2014/15: National Treasury briefing
Mr Velile Mbethe, Acting Deputy Director General, National Treasury, presented the Third Quarter 2014/15 expenditure report, broken down to show total figures and spending of departments and clusters across government. The National Treasury said that 44 per cent of total expenditure to end Q3 was for Direct Charges against the National Revenue Fund. This was equivalent to R367.2 billion and includes R271.9 billion transferred to provinces under the equitable share agreement, and R76.5 billion to pay State Debt costs. Total voted expenditure was R462.0 billion  70 per cent, or R321.7 billion, of this was transferred by departments to households, other spheres of government or other organisations and agencies and 30 per cent, or R138.2 billion, was directly spent by departments on operations, mostly on compensation of employees.

Operational expenditure increased compared to the same period in the previous financial year by R9.5 billion – nominal growth of 7.4 per cent. R89.8 billion was spent on Compensation of Employees, and R40.2 billion spent on Goods and services showing a growth of eight per cent and five per cent respectively. R8.2 billion was spent on capital assets, representing an increase of 13.4 per cent. The largest portions of the capital spend were under the Departments of Water and Sanitation and Police – mainly for the regional bulk and the building and upgrading of police stations respectively. The increase was mainly also due to improved spending on the School Infrastructure Backlogs Grant under the Department of Basic Education. The departments of Women, Human Settlements and Economic Development spent 75, 67 and 64 per cent of their operational expenditure on administration respectively

A total of R323.8 billion was transferred by departments, representing growth of 8.4 per cent, R96.8 billion was transferred to households representing growth of 9 per cent, primarily for social grant payments driven by increases in beneficiary numbers and slightly above inflation increases to social grants. R116.6 billion was transferred to provinces and municipalities, representing an increase of 8 per cent. The largest share of expenditure include Local Government Equitable Share Transfer under the department of Cooperative Governance and Traditional Affairs, health grants including those for HIV and AIDS, and National Tertiary Services and the Human Settlements Development grant.

R55.1 billion was transferred to departmental agencies and accounts, representing an increase of 3 per cent. The agencies that received the largest sums were South African National Roads Agency (R8.9 billion), South Africa Revenue Service (R6.4 billion),  National Student Financial Aid Scheme (R6.1 billion) for student loans and bursaries and the South African Social Security Agency (R4.9 billion) for the administration of social assistance. R23.1 billion was transferred to higher education institutions, representing an increase of 8 per cent with the majority being for the block grants to universities. R24.7 billion was transferred to public corporations and private enterprises, representing an increase of 29 per cent. This increase was primarily under the Passenger Rail Agency of South Africa (R12.7 billion) for the rolling stock fleet renewal programme.

Expenditure lagged in COGTA by R2.8 billion was primarily because equitable share payments have been withheld in some municipalities to offset MIG payments and Municipal Infrastructure Grant (MIG) transfers due to slow performance. There had been lower than expected payments for the Disaster Reliefs Grant.

Expenditure lags in Water and Sanitation was R2.8 billion due to the moratorium on the filling of vacant posts together with claims and invoices having not yet been received for work done by contractors on various projects under Regional Bulk Infrastructure, Accelerated Community Infrastructure projects and Municipal Water Infrastructure grants.

Energy: Expenditure lags by R1.4 billion. This is because the EEDSM payment to Eskom for the implementation of the Solar Water Heater Programme has not yet been paid due to challenges experienced by the implementation agent.

Justice and Constitutional Development: Expenditure lags by R1.2 billion. This was mainly due to claims and invoices not yet being received for accommodation charges and for the Criminal Justice System modernisation programme, together with non-filling of vacant posts and slower than expected implementation of infrastructure projects by the DPW

Trade and Industry: Expenditure lagged by R1.2 billion. This was mainly because an extension was granted for the submission of claims related to the MCEP Console. Further, payments related to the SEZ Investment incentives were being finalised.

 National Treasury: Expenditure lagged by R1.1 billion because the jobs fund paid grant advances to only 5 out of a potential 22 projects (leading to NT taking over administration from the Development Bank of Southern Africa, and declaring R561.1 million during AENE). Further, the transfer payment to the Post Bank of South Africa was being withheld as the entity has not yet spent funds that were transferred in the 2013/14 financial year due to the revision of the project implementation plan.

Higher Education and Training: Expenditure lags scheduled drawings by R0.8 billion. This was mainly because of the infrastructure grants to universities that have not yet been disbursed as the department awaits the submission and assessment of infrastructure reports from universities.

Conclusively 2014/15 Q3 national expenditure indicates a budget deficit of R149 billion for the first three quarters; R76.5 billion was spent on State Debt costs. Voted expenditure increased by R34.5 billion or 8.1 per cent when compared with Q3 2013/14; operational expenditure increased by R9.5 billion, or 7.4 per cent and funds transferred increased by R25.9 billion, or 8.8 per cent. Total expenditure was within the total scheduled available amount for the first three quarters.

Discussion
Mr A McLaughlin (DA) noted that the percentage spend for April to December was 69.3%. Ideally this should be about 75%. He was concerned that there might be an under spending in total. Although there was not a huge under-spend isolated in any one case, some were overspending and some underspending. He cited, by way of example, the Department of Higher Education and Training (DHET), which had spent 82.9% of budget, and Department of Transport (DOT) which had spent 87.4%, and compared them to the Department of Water Affairs and Sanitation (DWS)  at 42.5% and the Department of  Health (DoH) at 47.1%. He pointed out that of particular concern on the figures was the fact that water delivery, sanitation and health were issues central to the Bill of Rights, and thus that service delivery here was essential and not matched by the low spending. He also pointed to the fact that the Department of Correctional Services (DCS) had already spent 111.2%. He questioned where the extra money came from; pointing out that spending against a budget should never exceed 100%.

Mr McLaughlin expressed concern about the various references and higher figures allocated to ‘compensation of employees’. This was an indication of a larger problem, of an ever-swelling national wage bill. If this was intended to employ people in order to solve the unemployment problem, it was akin to a pyramid scheme that was sure to implode. It was not sustainable, and asked how the wage bill could be reduced and this situation could be turned around. He asked why money was transferred to other enterprises, such as the R6.4 billion paid to the South African Revenue Service (SARS), pointing out that it already received its own income. He was concerned that the Department of Home Affairs (DHA) spent over R439.1 million to cover litigation fees, and a once-off payment to the International Organisation on Migration (IOM), which was expected to be resolved by year end. He asked whether the membership fees were reflected in this way, questioning that they were surely paid once, and it was not a question of being "resolved at year-end". He asked for more explanation on what the litigation matters were, and why the DHA was involved in litigation, and also whether there was a contingency fund, or the fees were actually budgeted. If any employees were at fault to cause the litigation, then he asked if any internal steps were taken against them.

Mr McLaughlin expressed his serious concern that the DWS was not doing its work, reflected in the large difference between transferred and spent funds. The face that vacant posts were not being filled was worrying, as was the demand for senior posts; in light of these vacancies it was not surprising that this department was not performing. He asked what action the National Treasury had taken to remedy this situation, and whether there was a budget for the posts to be filled. He also cited the contradiction that on the one hand there was a moratorium on filling of vacant posts and on the other hand the report stated that most of the expenditure went to compensation of employees.

Mr McLaughlin asked whether money that had been transferred but not spent was earning interest anywhere and, if so, whether that interest was taken into account when assessing in the future funding of the department, whether it was regarded as departmental income that could help to pay for its activities, and where it was reflected. He pointed out that money unspent by municipalities amounts to over R2 billion.

Mr McLaughlin said that when he read the heading "Challenges experienced by the implementation agent" the alarm bells would start to ring. He asked whether this was hiding serious corrupt activities, whether the department concerned had followed upon this, and whether the problems were deemed to be acceptable. He pointed out that unemployed remained very high. The Jobs Fund was funding only five out of 22 potential projects, and had to be taken over by National Treasury. He asked how long this problem had been ongoing, what was being done to fix it, where were the funds now that were supposed to have been spent, and whether interest was accruing on them. If the Post Bank was the former Post Office Savings Bank why was money being paid into it?

Finally, he suggested that if the Department of Higher Education and Training was still awaiting submissions of infrastructure reports from universities, something needed to be done to push them into action, otherwise nothing may happen.

Mr N Gcwabaza (ANC) thanked National Treasury for the fine presentation. He asked for an explanation for the red markings on slide 14.

Mr Gcwabaza also asked for an explanation of the delayed payment to the International Organisation of Migration (IOM), pointing out that the membership fees were normally paid early in a new year. If interest was being charged for late payment, it would result in overspending.

Mr Gcwabaza asked if lower spending in the disaster relief grant meant that there were less disasters, or whether the problem was one of lack of capacity to make the payments. He agreed with the earlier comment about the contradiction between increased spending on personnel but what was described as a saving on vacant posts.

He was not clear whether the invoices featured on slide 18 were for the Department of Justice and Constitutional Development (DOJ&CD).

Mr Gcwabaza sought clarity on the non-filling of vacant posts in the Department of Public Works (DPW) which had had a review with related expenditure.

Mr Gcwabaza referred to the recent budget speech when the Minister of Finance said that there was greater expenditure In the Jobs Fund and more jobs had been created. He noted that the National Treasury had taken over the Fund and the private sector had also increased its responsibility.

Mr M Figg (DA) referred to page 15 of the report circulated in the previous week and noted that the last column, on expenditure / growth, had shown negative growth. This was of particular concern as it was a new year. The reason for lack of growth of expenditure was attributable to time lags.

Mr Figg asked for an explanation of the increase in spending this year, even larger than the last year, of the National Youth Development Agency (NYDA.) Also, for the Department of Home Affairs, he wanted to know the reason for the spending of R439 million over budget.

Mr Figg questioned whether, in the Department of Cooperative Governance and Traditional Affairs (COGTA) there was an error in the Municipal Infrastructure Grant (MIG) payments and transfers. Payments to contractors are not made in time, and he wondered how the COGTA could be assisted to pay on time and avoid the delays.

Mr Figg questioned the capacity of the Development Bank of South Africa (DBSA). There was high unemployment but implementing agencies were not doing what they should be doing in regard to the Jobs Fund.

Mr A Shaik Emam (NFP) asked why most departments, such as the South African Police Services (SAPS) seemed to be underspending, perhaps deliberately in order to try to create an impression that they were within their budget. He also could not understand why invoicing and late payments was a major problem, pointing out that contractors would generally seek to be paid as soon as possible..    

Mr Shaik Emam enquired why he state debt costs had increased to13.2%, from the same period of last year

He also expressed concerns about the non-performance by the DWS. In fact, there were a number of departments that were under-spending, this was an ongoing problem and he wanted to know what was to be done to resolve it. He cited the Department of Trade and Industry (dti) and the DBSA as examples.    

Mr Mbethe said he and his colleagues would reply to the questions. He began by addressing the questions on late payment. He noted that most of the invoices relating to infrastructure arrived at the respective departments in the 4th quarter only, meaning that there was a delay in spreading payments over the other quarters.

In relation to over-spending he said that if the Department of Correctional Services had sought approval from National Treasury for its over-expenditure, the necessary transfers for amounts exceeding budget would be made.

Mr Mbethe pointed out that the increases in the wage bill were for cost of living allowances, and this was agreed upon in consultation with the Labour Chamber.

Mr Japie Jacobs, Director, National Treasury, said that all money generated by SARS must go into the National Revenue Fund, and from there drawings were made for departmental purposes. He said that the problems at the Department of Home Affairs (DHA) were related to a cash flow issue, and the problem lay with reporting across different quarters.

Mr Jacobs noted that the Jobs Fund had initially commenced as a National Treasury project and DBSA was utilised as an implementation agency. When it became obvious that the projects were not running as expected, it reverted to being a unit within National Treasury. This unit was the technical and advisory centre, and the aim was to ensure that work gets done.

Mr Jacobs confirmed that Post Bank had replaced the old Post Office Savings scheme of the past, but it was now a fully-fledged bank offering normal banking services to the man on the street. The transfer of R200 million had not been made, however, because spending had been slow, and there would be a rollover into the 2015/16 financial year.       

Mr Jacobs also explained the apparent underspending of the budget in the vote for the Presidency (Vote 39). He explained that certain functions were transferred to the Department of Planning, Monitoring and Evaluation (DPME) and the spending for that function was therefore no longer to be made from the Presidency vote.      

He added that the issue of state debt costs was directly dependent on the fluctuations of the rand against foreign currency payments, and were difficult to predict in an unstable environment.

Ms Julia de Bruyn, Chief Director: Social Services, National Treasury, said that the Department of Higher Education and Training had largely transferred all of its money, which amounted to 98.5% of the budget, to universities and colleges, and to the National Student Financial Aid Scheme (NSFAS).Page 84 referred to all the transfers for the whole year, with the last being in December. She noted that the universities were responsible for submitting their feasibility infrastructure plans to the Department, but if these were not acceptable or incomplete they were returned for revision. Funds were not released by National Treasury until the plans were acceptable, and this explained the delays. To date, R2.7 billion had been disbursed, out of a total amount of R3.5 billion.

Ms Ulrike Rwida, Director: Human Settlements and Public Finance, National Treasury, said that the expenditure of 98% in the Department of Transport had been done by way of transfers, with significant amounts to the Passenger Rail Agency of South Africa (PRASA) and to the South African National Rail Agency (SANRAL), as well as to provinces and municipalities. The budget and expenditure were in line with each other.

Ms Rwida also explained the position in the Department of Water Affairs and Sanitation. It was a new department, expanding under a new organisational structure, while continuing to deliver services. A total of 64% of the department's budget was actually spent in-house. She conceded, however, that in some areas there was slow implementation in the various programmes. The challenge was to decide whether this department should build in-house capacity or outsource to consultants. It was a situation of either having high employment or a high consultancy budget.

Ms Rwida added to her colleague's explanation on delays in payment, saying that usually delays in the invoicing system were due to work not being done or work having to be verified. This last process was time consuming process, further delaying payment.

She explained that there were two main issues around the flow of expected expenditure in COGTA. The first was that if a municipality underspent, that money would have to revert to the National Revenue Fund, unless approved otherwise for rollover. When rollovers were approved, the money was not paid back to the NRF, but would be offset against the municipality's next allocation. This resulted in slower expenditure. Other municipalities did not spend their Municipal Infrastructure Grant (MIG) and that would then be withheld.

Ms Rwida explained that, in relation to disasters, there were 2 grants, one for immediate relief and the other the recovery grant. Should no disasters occur, no money would be spent.

She pointed out that slide 15 set out challenges of the deliverables and experience of the implementation agent.

The Solar Water Heater programme has transfer issues also, arising out of problems between contractors and Eskom or because of under-performance issues.     

She then explained the transfers to "private enterprises", and said that these were in many cases done because of the definitions in the Standard Charts of Accounts and how they were regarded under the Public Finance Management Act (PFMA). These related to entities such as PRASA, Eskom, SANRAL and others. Transfers to private enterprises were thus in most cases actually transfers to public corporations.

Dr Mark Blecher, Director: Health and Social, National Treasury, spoke to the low spending at the Department of Health and agreed that it was of particular concern. Part of the reason was that with the proposed introduction of the National Health Insurance, a pilot scheme was being run in some districts, targeted at General Practitioners. Of the R395 million budget, only R35 million had been spent by December, which represented only about 9% of the funds. Secondly, the National Health Grants Revitalisation component had a budget of R979 million, of which only R352 million had been spent. Under the pilots, the DoH had only managed to contract less than 200 General Practitioners, against the target of about 900.The building component was over-estimated by the universities. They were hoping to get contracts from provinces but it has been moving slower than expected.

Mr Owen Willcox, Chief Director Economic Services, National Treasury, also spoke to the state debt cost, saying there were two reasons for the increase. Repeating his colleague's explanation earlier, he noted that about 10% of borrowing was done overseas so a rand depreciation would increase that cost. The other reason was that South Africa had been running budget deficits over the last five years, and every year about 4% of GDP was added to the debt, resulting in increasing debt costs.

He also spoke to transfers to private enterprises incentive schemes, and commented that the runs from the Department of Trade and Industry, for instance to the Manufacturing Competitiveness Enhancement Programme (MCEP) had been slow. He explained that when firms had applied successfully for assistance, the dti would, for instance, reimburse them for new machinery bought, up to 30% in some cases. An online system was introduced last year which took longer than expected. At the same time the claims window had to be extended, resulting in slower processing. It was hoped to catch up with disbursements in the fourth quarter.           

Mr Shaik Emam said there was a concern that there would be pressure in the Fourth Quarter, leading to fiscal dumping, especially with the underspending that was manifesting itself already. It was very difficult to understand the under-spending in the Tugela area, when very little relief had happened to mitigate and compensate for the disaster. He urged that NT must apply pressure on departments to spend throughout the year, to avoid instances of fiscal dumping in the Fourth Quarter, and the possibility of the departments' spending being interrogated by Standing Committee on Public Accounts (SCOPA).

Ms M Manana (ANC) reminded the presenters that clarification was requested on slide 15, the once- off membership fee payable to IOM and asked when it would be paid.

Ms Manana sought assurance that the roll-over process of the Post Bank would happen if the required spending was not completed in time. She did not want to see this money being referred back to the National Treasury.

Mr N Kwankwa (UDM) agreed with his colleagues that the government sometimes did not respond quickly enough to disasters, or failed to respond at all, as had happened in areas of the former Transkei.

Mr Kwankwa was also concerned about the MIG grant, saying that some municipalities did not submit proper plans and not enough was being done to assist them. Infrastructure was badly needed but not being dealt with.

Mr Kwankwa reminded the presenters that the questions asked on whether interest accrued on the money that was not spent would be retained by departments, or how it was dealt with.

Ms S Shope-Sithole (ANC) thanked NT for its input. Commenting on the size of the country's debt, she wondered if it was not possible to borrow money locally, because the interest was severely affected by borrowing overseas.           

Ms Shope-Sithole wanted the Department of Justice and Constitutional Development to be asked to brief the Committee, saying that she did not see its matters receiving sufficiently urgent attention. She also thought that Eskom and the Department of Energy (DOE) should also be asked to brief the Committee. South Africa could not afford to have internal disagreements affect so important a sector as energy, on which the economy and growth were heavily reliant. She also noted, in relation to the DHET budget, that a list should be forwarded of those universities that were failing to submit the correct requirements for assistance.

Ms Shope-Sithole was surprised to hear that the National Treasury had taken over the Development Bank of South Africa's responsibilities, commenting on a recent media report that the DBSA in fact had more skills than it.

Mr Gcwabaza asked whether the allocations to non-profit institutions were made to those who were working for government, or whether they were private NGOs, funded by government because they were doing work for government. He hoped that there were normal checks and balances to ensure that the NGOs were doing what they said they were doing. He had had bad experiences before on their work.

Ms Shope-Sithole suggested the need for a skills audit in the DWS, saying that access to water was crucial, especially to the historically disadvantaged people. She wondered if there were enough skilled engineers in the department, and if there were, then the outsourcing needed to be explained.

Mr Figg wanted to get a comparison of increase in revenue and expenditure for the same period. He also wanted figures and percentages quoted for the cost of debt, and and the terms on which the money was borrowed, wondering also if it would not be better to put more money to paying off foreign debt when the rand was strong.

Mr McLaughlin wanted to confirm that 90% of borrowings were done locally. He asked how much of the money transferred to municipalities was being used to settle loan debts. He also asked if loans at municipal and provincial level were taken into account when calculating national debt; the national debt would actually be much higher if these figures had not been included into the national figure quoted.

Mr McLaughlin wanted to know if NT had done any comparisons with spending of the previous year, particularly given the volatile nature of the rand and inflationary pressure. Although South Africa may have spent more, the actual value gained could be less.

Mr McLaughlin asked if there was a national financial asset register, or whether each department had its own.

Mr McLaughlin confirmed that he had already sent a letter to the Chairperson requesting that the Minister of Water Affairs and Sanitation appear before the Committee to answer questions around lack of performance and the way forward.

Mr Willcox confirmed that, as a developing country, South Africa's borrowings of 90% locally were considered to be a very high percentage. Most other countries in this category had to borrow externally. The cost of debt varied daily and he was not sure what it was at present, but did know that government regularly issued a spectrum of bonds with different terms.

Mr Mbethe said that National Treasury was aware of the risk of fiscal dumping and was monitoring spending to mitigate the extent of damage. R25 billion had been taken off from the base line of departments, to deal with the underspending problem.

Ms de Bruyn advised that the small horizontal red line on slide 14 indicated percentage difference between the same quarters in the previous and current years. These were nominal comparisons that did not include inflation or exchange rates. It was difficult to predict the exchange rate, and therefore whether payments were likely to be higher or lower.

Ms de Bruyn answered comments on the universities, stressing that it was important that the poorest institutions, which were often not capable of putting together a plan, should not be punished unnecessarily. Similarly, the NT tried to ensure, in relation to the invoicing, that money was spent where it was meant to be, by requiring a financial statement and financial performance.

She noted that many NGOs assisted government in delivering programmes: for instance, in services relating to labour, and disability. They did vary in terms of how and how effectively they delivered. Some were in partnership with government, such as the National Education Collaboration Trust st (NECT) which was a partnership between the Department of Basic Education and the private sector. The National Treasury would be revisiting the issues of performance of the NGOs, to determine which were performing.

Ms Rwida responded to the comments on disaster relief, stressing again that it was funded in two ways: immediate relief and disaster recovery grants. Grants to departments were characterised by the nature of the disaster; so that, for instance, housing disasters would fall under the Department of Human Settlements; flooded roads under the Department of Transport, and so on. Most grants fell under the category of immediate relief. Recovery grants were for ongoing maintenance of roads, school roof repair, and similar. Immediate relief would be granted after a disaster, but to regain the schedule, recovery grants would be paid later, dependent on the budget and the timing of the disaster.

Poor planning in municipalities and spending of the MIG was assisted through a range of capacity support programmes. These ranged from financial support to help supply chain management, to capacity support. The allocated budget was R4.6 billion, which would cover assistance to municipalities with infrastructure planning and city support programmes in relation to human settlements. National Treasury did face some difficult decisions in relation to whether to hold money back if it was not used, because doing so would mean that ultimately the intended beneficiaries would suffer. COGTA and other departments had a range of capacity support programmes.

Ms Rwida emphasised that all unspent conditional grants must revert to the National Revenue Fund, unless proof was given that the money was already committed to identifiable projects. Interest on the accounts was monitored by National Treasury. Usually the money was held in current accounts with a low interest rate, but if monetary amounts were large the interest accrued could be quite high.

In relation to how the money was being spent, and whether grant money was used to settle debt, Ms Rwida noted that municipalities were restricted in what they could use the money for under the Division of Revenue Act.

Ms Jacobs noted the comment on Post Bank but said that a project such as the Post Bank could not be discontinued halfway through. National Treasury was committed to making it successful, so money would be rolled over for this.

Ms Jacobs answered the question on the payment of IOM fees. Financial planning was done early in the year, and this was a once-off fee. It was possible that payment approval could have been authorised for a window period of the Fourth Quarter, but that the person authorising went on leave early, resulting in a payment in December instead of January.

Ms Jacobs noted that in relation to the Jobs Fund, some concerns were raised whether the NT had sufficient skilled people to take over this function from the DBSA. The Fund was transferred back to the Government Technical Advisory Centre. Sufficient skills transfer had occurred, supplemented by others joining NT from the DBSA. A positive report back on the Jobs Fund, to a Committee, was presented by one of the teams in the previous week, and this could be made available to the Committee.

Mr Mbethe confirmed that the NT had established an agency to provide infrastructure assistance to provinces and municipalities, and that this was part of the Jobs Fund.

Mr Figg commented that it would be a great shame if money intended for specific beneficiaries were to be held back as a result of incapacity of some officials and wondered if there was not another way to solve the issue.

Mr Kwankwa agreed, but said that the problem was bigger, and indicated that capacity building mechanisms to support municipalities were not effective, and was not enhancing capacity. Withholding of funds did not help that problem.

Mr Shaik Emam agreed. Municipalities, without involvement from COGTA, tended to employ unsuitable people. When strategic planning was funded, the project should begin immediately but this was not happening, even with all the correct posts being available. The work was done by outsiders. He asked why those who were not delivering and not performing were still holding their positions. The cycle had not changed; the people were still suffering, there was no delivery and money had to be returned to National Treasury. There was a need for greater integration and he felt that both COGTA and National Treasury need to be involved in the selection process, to ensure quality employment. Situational monitoring needed to happen on a monthly basis, not quarterly.

Mr Gcwabaza said that he believed that National Treasury was correct in taking the money away from non-performing municipalities, because it would be grossly irresponsible to leave it with them. However, he suggested that those departments that were not performing need to be targeted instead, not National Treasury.

Mr McLaughlin noted the comment that DWS was a new department, but said that this was "an excuse that did not cut ice". It may have a new name but the structure was already in place and it should be able to do the work. He disagreed with Mr Gwcabaza's view on withholding of money from municipalities, stressing that ultimately, the people would suffer. He felt that sometimes National Treasury was losing sight of how things worked in municipalities. His experience had shown that large constraints around compliance were placed on the municipalities, requiring more employees, which in turn affected service delivery value. Municipalities also had to employ the best person they could get within their budget. If that person received a better offer from elsewhere, s/he would leave, and the process would begin again. Municipalities were making do with what they had and were using funds as required. Funds were not ring-fenced. Up-front contractual payments earned interest, which the municipality would use as they saw fit. It was important to ensure that the municipality was earning that interest, and not the bank.

Mr Mbethe stated that National Treasury saw itself as part of these communities and it was important that it must have mechanisms in place to ensure service delivery. National Treasury was also empowered to take away financial grants from those entities that were not performing in order to redirect funding to those who were performing. Its policies were there for the benefit of the poor.

Mr Mbethe, on behalf of National Treasury, offered condolences to the family of Collins Chabane. It had been Mr Chabane who had started the process of reporting on a quarterly basis, on both financial and non-financial matters. This served as an important monitoring function.

The Chairperson appreciated the information given by National Treasury because it helped the Committee Members do their work. The Third Quarter was a difficult one, because it was hard to make predictions. He wondered if National Treasury had any sense of what had happened to date, particularly in those departments where red flags were raised. Sometimes information reached the Committee at a stage where it was too late in the year to do anything effective, even if the Committee was to call in and question that department on poor performance. The Committee needed to engage with the departments in order that more information would be forthcoming. Reporting departments needed to present current information.

Mr Mbethe said the Third Quarter was traditionally the highest spending quarter.

Ms Shope-Sithole requested an organogram to see who was not working, and would recommend that that person should not get a bonus. This was most easily achieved through indicating their name and cellphone number.

Mr Shaik Emam said there were issues in the Department of Basic Education (DBE) that also needed attention as some schools were far behind. Issues such as oral hygiene were linked to water availability. Sports equipment was a requirement that was not always being met.

Mr McLaughlin suggested that the Committee call in both the lowest and highest spending departments, pointing out that the opportunities for corruption were greater where there was high spending.

Mr Mbethe advised that he would empower committees to engage with departments.

The Chairperson noted the suggestion of departments to be called in and said that Members may wish to suggest others. He agreed that underspending departments needed to account, and possibly the National Treasury could help the Committee during any deliberations. He stressed that the people were suffering, and the question was essentially not the money, but lack of performance.

Minute adoption
Minutes of the meetings on 10 March and 11 March 2015 were adopted, without amendments.

The meeting was adjourned.

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