Appropriation Bill [B6-2015]: Public Service Commission briefing

Standing Committee on Appropriations

19 May 2015
Chairperson: Mr N Gcwabaza (ANC)
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Meeting Summary

The Public Service Commission (PSC) briefed the Committee on the link between the 2015 Appropriation Bill and the principles of efficiency, economy and effectiveness. The Commissioner identified, at the outset that the PSC did not have many research reports and the briefing should be seen within that context. In relation to a request that the PSC outline the extent to which the 2015 Appropriation Bill gave effect to the National Development Plan policy objectives, the PSC suggested that perhaps the Human Sciences Research Council might have better research facilities. However, the PSC would identify spending areas where efficiencies may be realised, and opportunities within national government with significant potential for value for money, as also potential solutions for finding efficiencies in the public sector wage bill.

PSC firstly emphasised that efficiency was the relationship between inputs and outputs, and looked at the cost of inputs. Effectiveness was about achieving an intended affect or outcome. Value for money referred to the relationship between the resources expended and the value of the outputs and outcomes produced.  Economy was about the cost of inputs, and salaries were considered the biggest input in public sector departments. Although annual reports seldom spoke to effectiveness, the PSC recommended that there should be continued effort to improve the meaningfulness of information in annual reports. There was an increase in the percentage of national departments that managed to achieve more than 80% of their planned targets, from 5% in 2011/12 to 29% in 2013/14. On average, government departments had spent 98% of budgets, but the challenge was to increase the efficiency of the spending and the quality of the outputs, or service delivery. Performance management needed to be improved at both organisational level and individual staff assessment level. PSC had prepared a discussion document covering performance management at both organisational and individual levels, and suggested that the Performance Management Development System (PMDS) should be fundamentally reviewed. There was no improvement in the compliance rate for the submission of performance agreements by heads of departments (HODs), and no evaluations had been done for two years. Although appropriate management action included consequences for poor performance, and giving managers the authority and means to take steps to improve performance, managers still felt that they did not have the power to make a difference. The Minister of Finance had, in the budget speech, noted that efficiencies could be realised firstly by reductions of budget allocated to non-core activities, and secondly, reduction on travel and subsistence. A Central Supplier Database would be introduced to ease the administrative burden from supply chain management practitioners.

The PSC noted that micro efficiency indicators like not paying invoices on time, or recovering money where financial misconduct had occurred, were often indicators of general efficiency within departments.
Financial misconduct cases had fallen from 660 in 2011/12 to 290 in 2013/14. Over the last two years, PSC had conducted studies on Hospital Public Private Partnerships (PPP), outsourcing of government services and coordination in the rural development setting, but felt that models used to consider whether PPPs were appropriate were too narrowly focused on specific cases, without considering wider budget implications. Outsourcing of core services in departments remained a problem especially if there were people in place who were inadequate to fulfil the task. Furthermore, government tended to create duplicate structures, particularly for rural development, at huge cost. Major administrative reforms would be needed to get the public sector wage bill under control, focusing not only on levels of wages and job grading and growth, but also on general HR efficiencies, including the cost of suspensions during disciplinary action, which was R34 million in 2013/14.  

The Committee commended the PSC on the work that it was doing. Members were concerned about the lack of improvement in the completion of performance contracts by managers in government departments, and questioned the rationale for awarding bonuses when performance was not being properly measured, also asking whether it was realistic to expect ministers  to monitor accounting officers, and whether this was not a function for the PSC or Auditor-General. Concern was raised over the huge wage bill of the public service. The outsourcing of core business of departments was unacceptable and several members felt that government needed to capacitate the staff better, whilst the PSC stressed that re-introduction of specific government training courses would be useful. The Committee saw value in public private partnerships but commented that sometimes the benefit to government was not always evident. There was agreement that there had to be consequences for poor performance in government departments, and questions were asked on the causes of poor performance, why managers felt powerless to act, whether policies were a problem, and whether monies were recovered. They asked why  some heads of departments had not been evaluated and others were listed as not having qualified to be evaluated. Members stressed the need to pay service providers within 30 days, asked for an indication of the problems and noted the PSC's suggestion that whenever sub-contractors were appointed, this should be pointed out specifically to departments, since it was often at the contractor to sub-contractor level where this payment was delayed, and asked if the PSC could make suggestions on fronting in order to obtain large government contracts.

Minutes of 12 and 13 May were adopted.

 

Meeting report

Election of Acting Chairperson
In the absence of the Chairperson of the Committee, Mr S Mashatile (ANC), the Committee elected Mr N Gcwabaza (ANC) as Acting Chairperson.

Public Service Commission (PSC)
Ms Phumelele Nzimande, Commissioner, Public Service Commission, noted that the Public Service Commission (PSC or the Commission) had been asked to brief the Committee on the link between the 2015 Appropriations Bill and the principles of efficiency, economy and effectiveness. The PSC was asked to identify spending areas where efficiencies may be realised. It also had to identify opportunities within national government with significant potential for value for money. The PSC was furthermore tasked with suggesting potential strategies for finding efficiencies in the public sector wage bill. The PSC had furthermore been requested to look into the extent to which the 2015 Appropriations Bill gave effect to the National Development Plan (NDP) policy objectives. However, it had been unable to do so, and suggested that the Human Sciences Research Council (HSRC), with its large research capability, was better equipped to look into the matter. She wanted to note upfront that the PSC did not have comprehensive research information on all these topics and any input that it might make today should be seen in that context.

Speaking firstly to the link between the 2015 Appropriations Bill and the principles of efficiency, economy and effectiveness, Ms Nzimande explained that efficiency was the relationship between inputs and outputs, but more importantly looked also at the cost of inputs. Effectiveness was about achieving the intended effect or outcome. Value for money similarly referred to the relationship between the resources expended and the value of the outputs and outcomes produced. Economy was about the cost of inputs, and here she pointed out that salaries were considered the biggest input in departments. The indicator in an Annual Report of a department did not say much about effectiveness, since outcomes-based data was seldom provided in annual reports. It was, nevertheless, felt that there should be continued efforts to improve the meaningfulness of information in annual reports.  \

The percentage of national departments who managed to achieve more than 80% of their planned targets increased from 5% to 29% between the 2011/12 and the 2013/14 financial year. There was an average of 98% spending of budgets of national departments across the board during the 2013/14 financial year. The challenge was to increase the efficiency of the spending and the quality of the outputs, or service delivery. Performance management needed to be improved at both organisational level and individual staff assessment level. The PSC had a discussion document which covered performance management at both organisational and individual levels, and suggested that the Performance Management Development System (PMDS) should be fundamentally reviewed, as it was fraught with problems. The PSC had found that there had not been an improvement in the compliance rate for the submission of performance agreements by Heads of Departments (HODs). It was noted that in the last two financial years no HOD evaluations had been done. Appropriate management action included consequences for poor performance, but even more importantly giving managers the authority and means to take all necessary steps to improve performance. In the public service managers often felt that they did not have the power to make a difference. 

There were various spending areas where efficiencies may be realised, as cited in the budget speech of the Minister of Finance, where revised spending plans across the whole of government were mentioned. There would be reductions in budget allocations for non-critical activities. Travel and subsistence would be cut back by 5% a year. A Central Supplier Database would be introduced to ease the administrative burden from supply chain management practitioners and to address the Auditor-General’s concerns. Micro efficiency indicators, like the payment of invoices within 30 days and recovering money where financial misconduct had taken place, were important as they often spoke to the general efficiencies in departments.

She noted that in the 2011/12 financial year, there had been 660 misconduct cases, and this figure had dropped to 290 in 2013/14.  The PSC had conducted studies over the last two years on Hospital Public Private Partnerships (PPP), outsourcing of government services and coordination in the rural development setting. The models that were used to consider the appropriateness of a PPP were too narrowly focused on the specific case, such as the individual hospital, and did not consider wider budget implications. The level of outsourcing in government was not too high. However, outsourcing of core services in departments was a problem, especially if capacity had been created in a department and the appointed staff proved inadequate to the task. Government had a tendency to create duplicate structures on the coordination of rural development, which inevitably had huge cost implications.

In order to come up with strategies for finding efficiencies in the public sector wage bill, the PSC noted that in order to get the public wage bill under control administrative reforms on a broad front would be required, and these should not only focus on the factors directly affecting the wage bill, such as the level of wages, job grading and growth in the post establishment, because efficiencies in general human resource administration also affected the wage bill. Suspensions further had an effect on wage bills because officials were paid whilst suspended, and costs may be incurred in appointing acting persons in their place. The cost of suspensions in 2012/13 was R45 million,  but this decreased to R34 million in 2013/14. There seemed to be no correlation between the number of officials suspended and the cost of suspensions.

Discussion
Dr C Madlopha (ANC) was concerned about the lack of improvement in performance contracts over the last few years, and saw this as a great concern. She asked how government employees were able to get performance bonuses when they did not have performance contracts. A further point was how it was possible to measure the efficiency of departments when there were no performance contracts in place. She also felt that it was not realistic for ministers to monitor accounting officers and wondered if the PSC should instead do the monitoring. She emphasised that there needed to be consequences for non performance.

Dr Madlopha stated that the work that the PSC was doing was commendable. The Committee was also concerned about the huge wage bill of the public service. She was glad that the PSC had pin-pointed some challenges in this regard. She agreed with the PSC that the outsourcing of core businesses of departments was unacceptable. Outsourcing in general was a problem in government departments. There was a need for government to capacitate and skill its staff. The Committee welcomed public-private partnerships but the only concern was what government was going to gain from them. She said that the level of detail contained in the briefing document was of great assistance to members.

Ms Nzimande said that some of the questions asked by Members could be addressed now, but other issues might perhaps warrant being highlighted again in future briefings to the Committee. Many of the questions were also of a thematic nature, which required an overall response. The response would therefore be a combined one and not specific to each Member. She agreed with Members that outsourcing in government was a problem and that Parliament needed to take up the matter and engage on it.
 
Mr A Shaik Emam (NFP) agreed that poor performance should attract consequences, and asked what the PSC suggested in this regard. He questioned the root cause of poor performance. He also asked for the reason why service agreements were not signed, and agreed that it seemed anomalous for managers to benefit from bonuses when they had not signed service agreements, and wanted to know how many instances of this had been found. He pointed out that the figures for cases of misconduct seemed high, and asked if anything had been recovered where misconduct was found proven. He enquired whether the major challenges on non-compliance were to be found at national, provincial or local government level? Audits done by the Office of the Auditor General depended upon documentation and information that was provided by departments, and he questioned how accurate the information was that was being provided, since departments would naturally want to provide information that would tend to lead to a clean audit. He asked who should be doing the monitoring and tracking of service providers, in order to ensure that there was compliance. He asked what recourse there was when it was realised that the staff appointed were inadequate, which usually meant that then the work had to be outsourced.

Mr M Figg (DA) pointed out that some of the pages of the briefing either made reference to 2014 or 2015, and enquired which was correct? He referred to page 8. He expressed the view that government was non profitable and he therefore did not understand why management was receiving performance bonuses. On page 10 it was stated that the compliance rate on performance agreements signed by government employees still sat at 65%. He referred to page 11 which stated that heads of departments (HODs) had not been evaluated, and asked how they could get paid when they had not been evaluated.  Page 12 mentioned that there were HODs who had not qualified to be evaluated. He asked the PSC to clarify the issue.

Ms Nzimande pointed out that that the document should make reference to the 2015 Appropriations Bill, and the 2014 reference was a typographical error. She said that the PSC was fully aware that the public sector was different from the private sector, but the bonus was seen as a way to incentivise people to work harder, and to set themselves apart from their colleagues. The PSC had made a proposal to the Department of Public Service and Administration on this issue. Perhaps some non-monetary incentives should be considered. She said that the PSC would check on the issue of managers receiving bonuses even though they had not signed service agreements. She noted that the PSC’s mandate and legislative framework allowed it to make recommendations to the Executive Authority and to be accountable to parliament. The PSC therefore highlighted problems to Parliament. The PSC could provide further figures relating to the questions whether Director Generals and Ministers had signed performance contracts and whether Director Generals had been assessed.

Mr Figg said that page 13 spoke about the Central Supply Database, which he felt could be problematic especially for regional and smaller suppliers. Small Medium and Micro Enterprises (SMMEs) were going to be disadvantaged. He referred to page 15 and asked for an explanation on what the "average rand value of invoice paid" meant. Referring to page 17 he asked whether an analysis had been done on the number of financial misconduct cases that had been reported to the PSC. There seemed to be an issue between the number of invoices and the amounts involved. He asked for an explanation of page 26, more specifically on the number of suspensions and the costs related to that.

Ms Nzimande said that the jury was still out on the Central Supply Database and the pros and cons were being discussed. Speaking to the correlation of value and the number of people suspended, she explained that it was all about the value of each misconduct case. Regulations in the Public Finance Management Act (PFMA) required government departments to report every case of misconduct to the PSC.

Dr Phumlani Tembe, Deputy Director, Public Service Commission, explained the statement that some managers had not qualified to be evaluated, by saying that if a manager was only acting, or had not completed an evaluation cycle of one year, then such manager could not be evaluated. He added the cost of precautionary suspensions depended on the level of the people involved. 

Ms M Manana (ANC) noted that the briefing had spoken about service providers of government not being paid within 30 days of presenting their invoices. President Zuma had stated that service providers of government should be paid within 30 days, and she asked why this was not happening. She felt that the outsourcing of government services was an issue which needed to be dealt with urgently, to avoid it being a problem in the future. Coupled to this issue was the use of labour brokers, which also needed to be addressed. 

Ms Nzimande said that the 30 day payment period was an issue which was very important to the PSC. The PSC also analysed the State of the Nation Address and the payment of service providers within a 30 day period was indeed emphasised. The Department of Performance Management and Evaluation was trying to address the issue. Some of the reasons proferred for not making payment within 30 days ranged from being simply nonsensical to being quite serious. There were some government officials who simply were too lazy to make timeous payment. Other officials were under the impression that they had to wait 30 days before starting to process the payment. It was believed that in most instances service providers invoiced government departments timeously, in order to receive payment as soon as possible. Other reasons for late payment could be management deficiencies. Managers had to ask questions regarding what invoices had been received and why they had not been paid. There could also be systemic problems for not making payment on time. In many instances, larger companies outsourced work to smaller companies and departments were often not aware of the smaller companies. The PSC had found that most of the complaints were by smaller service providers, and it had also found that 60% of government departments were unaware of these smaller providers, who had not been contracted directly by the departments. In many instances, the large contractor had been paid by the government department but had failed to pay the sub-contractors in time. Other reasons for non-payment on time included that sometimes officials in departments tried to cut corners in procurement. There were instances when there was no paper trail. Another complaint by service providers was that government officials were corrupt, and had to be bribed before they were willing to make payment. The PSC had made detailed recommendations regarding the 30 day payment period.

Dr Tembe added that sometimes the delay in payment was also internal to departments, resulting from insufficient capacity, inadequate systems of the office, and not having the latest banking details of the service provider.

The Acting Chairperson referred to page 8, which spoke about managers feeling powerless to act. This issue came up over and over again. He questioned whether the problem lay with government’s policies and asked how else could South Africa become an efficient and capable state? Managers should be in a position to put things right if subordinates had done wrong. Page 20 made mention that new and state-of- the-art health facilities were being built by government through public-private partnerships, yet existing facilities were not being revitalised. The Department of Health had conceded that there was a problem. In some instances new clinics were built right next to old clinics which could rather have been revitalised. He asked, therefore, how strong were intergovernmental relations, when measured against intergovernmental fiscal relations, and asked if the latter were tight enough. He emphasised the need to  ensure that transferred funds were used in an efficient and economic manner. He agreed that there was no way in which ministers, given their busy schedules, could be expected to evaluate managers. He suggested that perhaps managers could be evaluated by the Office of the Auditor-General. He also asked what managers were evaluated against.

Ms Nzimande spoke to what was disempowering management, and said that this included a number of issues. Firstly, the PSC believed that South Africa was lagging behind on proper and consistent training in the public service. The job requirements for the public service were too generic - such as having a degree qualification, whereas in fact what was rather needed was constant training. Another reason why managers were perhaps powerless was that they perhaps lacked knowledge. She suggested that perhaps managers needed to be tested when they were promoted. However, she felt that training was of utmost importance. She proposed that the National School of Government be revived. The PSC proposed that through the National School of Government curriculum, people be trained for specific jobs to be undertaken. 

Mr A McLaughlin (DA) noted that when the PSC had last appeared before the Committee, he had raised the issue of managers not submitting performance contracts. At the time the PSC had responded that unfortunately it was unable to take action. It looked as if nothing had changed. The figure was still 65%, as it had been last year. What exactly was the problem and why had no impact been made? He asked whether there was something that the Committee could perhaps do.

Mr McLaughlin noted the reference on page 8 that spoke about managers needing to become more effective, and asked why things were the way they were, if managers had no power. He spoke of one case investigated, when a government employee had appeared in court on a debt claim, and said that she was earning R16 000 per month, and the Court had asked why, if she was earning so well, she had fallen into debt. Her response was that she paid half her salary to her manager, in return for him giving her the job. He suggested that the manager might well have a similar arrangement with all the staff he had appointed.

Mr McLaughlin noted that the briefing had given information regarding service providers who had been paid and who had not been paid after the 30 day period, but there was no information on how many services providers were paid within 30 days, and what the average value was for invoices paid. 

He referred to page 17 and asked the reason for the drop in the number of misconduct cases, from 660 to 220, whether this figures was genuine or whether those attempting to report misconduct were victimised into not reporting. He also enquired what the PSC was doing about those cases, some of which had probably prescribed.

Ms Nzimande asked the question on whether the PSC had the power to act, and said that when the misconduct issues came to light, the focus would probably be on the Executive Authority and not the actual person who had reported. She agreed that managers needed to "feel the heat" and a cognitive shift was required. The National School of Government had to instill a psyche in people to serve with pride. A job should be seen as more than just a job. The values  entrenched in the Constitution needed to be driven home. She said that the PSC also had to consider grievances of government employees. The PSC proposed setting out and instilling values of service. There was nothing in law or in policies which actually prevented things from getting done.

Mr Tembe said, in relation to invoices paid within the due period, that the PSC had received this data from National Treasury, and it did not report on invoices that were paid within the 30 day period. In relation to financial misconduct, he confirmed that the PSC tracked amounts recovered, having recovered R225 000 in 2012/13 and R158 000 in 2013/14. However, these were considered drops in the ocean.

Ms S Shope-Sithole (ANC) asked the PSC to forward its three reports, to which it had alluded, in the briefings to the Committee. 

Ms Nzimande agreed to forward the reports to the Committee.

Ms Shope-Sithole also spoke to the late payment of invoices and said that technology today made it easier to comply since updated banking details were not too difficult to obtain. The South African and the world economies were not growing. Small businesses needed to be supported, otherwise they would start to retrench or close, and this would be a serious concern.

Ms Manana noted that it was actually subcontractors who did the actual work, yet they had no contracts with government and relied on the main contractor to pay them. This was a particularly rife problem, and she wondered how it could be resolved.

Ms Nzimande stated that the PSC had made recommendations that when businesses got contracts from government but lacked capacity to do certain things, then an annexure should be attached to the contract specifying that they would have to sub-contract out certain work. The affected department should be informed about the subcontracting, so that payment could be made directly to the people actually doing the work. 

Mr Figg appreciated the forthright approach of the PSC. He felt that the PSC was doing a good job.

Mr Shaik Emam asked whether, in light of the challenges that SMMEs faced on receiving payment, it was possible for the PSC to do an investigation on fronting by big business, in order to get government contracts. Profits were mainly seen by the big businesses behind the scenes. The small businesses barely made a living. In some instances government paid the big businesses within 30 days but they only paid the smaller businesses after 90 days.

Ms Nzimande responded that the mandate of the PSC did not allow the PSC to do an investigation. She suggested that a three pronged investigation by the Department of Trade and Industry, the Department of Small Business Development and National Treasury would be a step in the right direction.

Dr Madlopha felt that where a department lacked capacity to perform this was not a good enough reason to outsource the work to contractors, and asked how the PSC regarded the matter.

Ms Nzimande agreed that where capacity was lacking in a government department, then someone needed to be employed. There was no need to outsource. If something needed to be outsourced on a once off basis then skills transfer had to take place. 

The Acting Chairperson thanked the PSC for being frank in its reporting and responses to questions, saying that the Committee appreciated this approach. Whatever was not working well in state departments needed to be corrected. One of the major issues which had to be dealt with was the radical transformation of the economy to achieve inclusive growth. When government contracts were given to specific people, then the purpose had to be achieved. Big companies had to declare to whom they were subcontracting. There also needed to be a transfer of skills so that SMMEs could grow, and over time be able to achieve better economies of scale. Every MP would like to see the South African economy grow and see that the previously disadvantaged should form part of the mainstream economy. The lives of people at grassroots level should change for the better.

Committee Minutes
Committee Minutes dated 12 May 2015 were adopted, with amendments.

The minutes of 13 May were adopted with no amendments.

The meeting was adjourned.


 

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