The National Treasury reported to the Committee on the unauthorised expenditure incurred by the Department of Transport (DOT) on bus subsidies during the financial year of 2008/2009. The Department of Transport was present to provide further explanations on the reasons for the unauthorised expenditure.
National Treasury highlighted what had been done after 2009 to try to remedy the situation. Firstly, an additional allocation of R1.8 billion had been added to the transport vote towards bus subsidies, to allow the base line to grow at 12%. Treasury had also introduced a supplementary conditional grant to provincial departments, so that they were able to fund the subsidies, manage the contracts and monitor the expenditure. The immediate response had been positive in terms of stopping the over-expenditure. However, it could now be seen that service delivery was being impacted because provincial governments had not added money towards this service.
The DOT contended that it had not been able to do anything about the situation -- it just had to continue with interim contracts. The Department had merely been a conduit, getting money from Treasury and passing it on to the provinces. From the side of the Department, it had attended to what it could best attend to, but it had been a victim of the economic situation.
The Committee asked how many bus routes there were. What were the differences between competitive tendering and interim contracts? Was the irregular expenditure the result of poor planning and an inability to adhere to the dictates of the Public Finance Management Act (PFMA). Members were generally disappointed at the inability of the Department to adequately explain the reasons for what had happened. They asked who had been held responsible for non-compliance with the dictates of the PFMA, and in terms of the remedial steps being taken, what monitoring was happening in the provinces?
National Treasury on Department of Transport on unauthorised expenditure on bus subsidies in 2008/09
Ms Marissa Moore, Chief Director: National Treasury, highlighted what had been done after 2009 to try to remedy the situation. Firstly, an additional allocation of R1.8 billion had been added to the transport vote towards bus subsidies, to allow the base line to grow at 12%. Treasury had also introduced a supplementary conditional grant to provincial departments, so that they were able to fund the subsidies, manage the contracts and monitor the expenditure. The immediate response had been positive in terms of stopping the over-expenditure. However, with 20/20 hindsight, it could now be seen that service delivery was being impacted because provincial governments had not added money towards this service.
Mr T Brauteseth (DA) asked why the Department of Transport (DOT) had gone to court against certain operators, and what it had done wrong to have landed in court with an over-expenditure of R1.2 billion. He asked for comment from the National Treasury on what action could have been avoided. Had there been additional costs and if so, how much were they?
Mr Pule Selepe, Director General (DG) DOT, asked Mr Collins Letsoalo, the Chief Financial Officer (CFO), to respond.
Mr Letsoalo said it was important to understand the reality regarding the bus subsidies which the Department had taken over in 1994. It had taken over a scheme that subsidised the number of people that the bus service carried on different routes. The number of passengers had been increasing, but the money had been decreasing, so the deficit had increased. The Department had landed in court and the liability had had to be funded by the Department.
Ms Moore said that both the Department and the National Treasury had been cited in that legal action, the argument being that the Department had requested additional funds but had not received them. The court had found that the National Treasury, being an instrument in a Parliamentary decision around the allocation of budgets, could not be ordered to pay.
The issue had been that the approach to addressing the liabilities by asking the National Treasury for more money had not been correct. The Department had needed to ensure in their budget vote that there were sufficient funds to pay for the service. Obviously the second approach would have been to reduce the services, or manage the pressure on the service. At that time, bus subsidies were paid on the number of tickets sold, which had been very difficult to manage and oversee. This had now been shifted to the amount of kilometers covered by the service provider, which was more predictable. There had been system problems with the way that the monitoring of the bus subsidies had been taking place. The Accounting Officer should have taken more care to ensure that those contractual obligations had been provided for in the budget, as there had been sufficient money in the budget to ensure that those claims could be paid.
With regard to the question of the additional costs, Ms Moore said she did not have this information with her, but it would be made available to the Committee in terms, showing the legal costs and whether an order was made for the Department also to pay the costs of the South African Bus Operators Association (SEBOA).
Mr M Hlengwa (IFP) referred to paragraph 4 on page 1 of the document presented by the National Treasury, and said that this was about negligence and the lack of adherence to due process. He did not understand why the Department had not met its obligations. He asked why the dictates of the Public Finance Management Act (PFMA) had not been adhered to. How much money had been redirected from the programme, and why it had been redirected?
Ms Moore replied that there had been a strategic plan which sought to rationalise and devolve services to local government. The Public Utility Transport Corporation (PUTCO) services to Gauteng had been suspended about two months ago, and the Committee knew what chaos this had caused for commuters. Powers had not been devolved. It had not been easy to implement what had been called for in the Strategic Plan. The approach had been revised, and the budget had been increased.
The DG said that what should give the Committee comfort was that there had been a R1.8 billion increase in the budget from the National Treasury after the court order, which suggested that there had been under-funding. Plans had been made, but the passenger growth had been unforeseen. He did not agree that there had been negligence.
Mr M Booi (ANC) said he hoped the CFO understood the system -- that the Department did not have the final authority. The final authority rested with the Committee, and the National Treasury provided recommendations. He hoped that the National Treasury understood this and both the parties concerned had to convince the Committee. He felt that the Committee was not convinced. The National Treasury was unable to tell the Committee what was wrong with the system that had made it impossible for policies to be put in place to do the job. The National Treasury was using the latest chaos in Mamelodi as justification, and this was unacceptable. Systems were not in place. He asked for honesty, and emphasised that this involved the taxpayer’s money.
Ms N Khunou (ANC) referred to the comment by the National Treasury that ‘this was not an easy situation’, and said that this meant that both the Treasury and the Department should pay the legal fees because it had not been easy to deal with. She also referred to the CFO having said that roads were subsidised. She asked which roads were being referred to. If there had been poor planning, then problems would always be experienced. Communication in the Department also seemed to be a problem. Poor planning and negligence resulted in poor planning. R311 million had been shifted, but Programme 6 had not been addressed and the Department had known there were difficulties and that they could not pay for the agreed-upon subsidies. The Committee needed to understand why there had been unauthorised expenditure.
Mr Mawethu Vilana, Deputy Director General: DOT argued that there was not an issue of poor planning. Planning had been pointed and correct. The reality was that the Department just could not do anything about it -- it just had to continue with interim contracts. The Department had merely been a conduit, getting money from Treasury and passing it on to the provinces. From the side of the Department, it had attended to what it could best attend to, but it had been a victim of the economic situation.
Mr M Ross (DA) said he shared the concerns of his colleagues, and commented that with most of the departments, unauthorised expenditure had ballooned in the years 2013/14 from roughly R2.4 billion to R5 billion. It was a daunting task for the Committee to recommend the approval of unauthorised expenditure at this level. He was clear about what the National Treasury was saying, but he agreed that answers were needed to address deficient financial management. He referred to (b) on page 2 in the document, and said that for him the main concern was the lack of competitive tendering – the conversion of interim contracts into competitive tendering. He asked the CFO for an opinion on whether there was very little monitoring of expenditure and if mechanisms had been put in place to curb the expenditure.
Mr V Smith (ANC) said it was useful for the National Treasury to attempt to convince the Committee that the cause had been addressed. What was happening today? He asked further if the National Treasury and the Department could indicate if they had found remedies for the problem, and if those remedies were yielding positive results. There had to be an assurance that the steps identified in 2011 by the National Treasury were being implemented now and were being monitored.
Ms T Chiloane (ANC) raised concerns about the Department’s non-compliance with the dictates of the Public Finance Management Act (PFMA). She asked who was held responsible for this. In terms of the remedial steps being taken, what monitoring was happening in the provinces?
Mr Brauteseth said that the situation seemed to be that solutions were being sought after a crisis. Models of best practice had to be looked at to seek understanding. The White Paper of 1997 had been ignored, as had the Strategic Plan 2002. Even after 15 years, the Department could not work out how to fix the problems. He would find comfort in being given a list people to be disciplined for non-compliance. The Department had been aware of the situation and had chosen to ignore it. He asked for specific details of who had been brought to account for what had happened, or who was going to offer their resignation for what had happened.
Mr Hlenwa said he was not satisfied with the answers to his question, because he did not accept the reply that ‘it was not a big amount of money’. What was ‘a big amount of money’? Where did one draw the line? Any amount of taxpayer’s money spent outside the parameters of the PFMA was ‘a big amount of money’. No one could not come here in good faith and justify wrong doing. The Department had to admit that they had erred in good faith. This was about taking responsibility, and the absence of accountability. What consequences had been meted out to those who had contravened the PFMA?
The Chairperson said that there were four issues from the report of the National Treasury that required serious engagement:
- Point (4) on page 1 which stated: ‘However, these plans were not implemented and provinces were allowed to expand their bus subsidy commitments’;
- Point (b) on page 2 which stated: ‘overspending arises mainly from the failure to implement the policy decision on the introduction of competitive tendering as..’;
- ‘..the result of the failure to improve the efficiency of the bus subsidy system was that interim contracts ran for almost a decade…’; and
- The last sentence of point 6 on page 3 which stated: ‘In April 2009 the Minister of Finance therefore recommended that the Minister of Transport undertake an investigation into the apparent failure of the accounting officer to exercise effective financial management of the bus subsidy contracts.’
These were the administrative issues that should be explained. It was a pity that the Minister was not in attendance. This situation illustrated the inheritance of apartheid, where people had to undertake long distances to their places of work. Even after 21 years, the situation had not changed. How did one monitor this situation? There was a political side and an administrative side. He asked why there had been expansion with interim contracts. Had an investigation been done and if so, what had been the findings?
Mr Lesiba Manamela, Director: Department of Transport, replied that it would have been good to get a brief background to the competitive tendering process. It had started in 1997 when interim contracts had been signed. They were supposed to have been for three years. Interim contracts were to prepare operators for competitive tendering . With the first contract issued in 1999, it had been clear that the cost of competitive tendering had been too high. Only a few contracts had been issued.
In 2000 a moratorium had been issued on two outstanding issues – labour, and the cost of competitive tendering. Competitive tendering had changed the working conditions of people who had previously beeen employed fulltime. They had become contract workers, and every five years had to have their contracts renewed. This had to be resolved before competitive tendering could be continued.
In 2002 a study had been conducted between the Department and the National Treasury. This study had found that when an interim contract was put out to tender in a contracting environment, there was a 25% increase in the cost, and the Department did not have this kind of money. Hence there had been a resolution to have a moratorium until these two situations could be resolved.
There had been increases because interim contracts, when signed, had had to take existing operations as they were, and put them into interim contracts. There had been no standards.
Mr Manamela said that with a tendered contract or negotiated contract, there had been a whole list of quality standards that had been set. This had increased the operating costs. The Department did not have the money for this. Today, 66% of the budget still went to interim contracts. The Department had never had enough money to implement competitive tendering through tenders or negotiated contracts. This was not necessarily because there had been no plans -- those plans had been there in certain instances -- but there had been no funds to make sure the Department implemented the plans.
The problem had started in 2005, when expenditure on contracts had started exceeding the budget. The Department had continuously engaged the National Treasury. These contracts were not monitored, but were audited. The key issue was that that the Department never had enough money.
The Chairperson asked if this situation turned capitalism on its head.
Mr Manamela replied that interim contracts had allowed buses to operate without any standards and no quality checks.
The Chairperson said that that was why he had seen so many broken down PUTCO buses overturned on the Moloto road.
Mr Manamela said that these services were still on interim contracts, and were supposed to be so for a short period. A better service had been introduced and was being monitored in KwaZulu-Natal. This tendered and negotiated contract was being monitored on a daily basis, with quality determined and standards provided.
One of the reasons for expansion being allowed was that interim contracts were based on the number of tickets sold. One could not budget on a month to month basis, because it was unknown how many passengers were going to be carried. That was why in 2009 the passenger variable had been converted into kilometers. However, that was also not achieving the objective because in some cases one found that there were more services, and these had to be kept in terms of the budget. This was why some of the services had collapsed.
The Chairperson asked if the National Treasury wanted to respond to any comments made.
Ms Moore said that Mr Booi had asked why the position was irreversible. The question the National Treasury had to ask, to make recommendations to the Committee, was if someone had taken the money, could it be brought back from their account and returned to the Revenue Fund. Irreversible meant that the money had already been paid to the contractor and the services had already been rendered, so it was not possible to get the money back. This was what the court case had found. It was not as if the money had been stolen. It had been used for subsidies for services rendered.
She felt it would be valuable for the Committee to understand that two things could be done. One was to manage the financial liabilities to ensure that there was sufficient money to pay for the services rendered. The other was to change the way the service was performed, so that one was able to reduce the liability or able to manage the liability better. The issue was that the accounting officer had not managed the resources of the Department in order to stop the over-expenditure.
Mr S Radebe (ANC) asked what had happened to the officials who had not complied with the PFMA.
The DG said he was not aware that action had been taken against the accounting officer, or that the accounting officer had been disciplined.
Mr Booi asked how many routes there were.
Ms Moore said that there were 11 727 routes.
Mr Smith said that the situation in question had not involved fraudulent action -- it had to do with competitive tender processes, with labour being the potential problem. A service had been provided, therefore the only problem had to do with politics, so the Portfolio Committee on Transport had to deal with it. This was not a SCOPA issue.
The Chairperson said that the accounting officer was obliged to ensure that unauthorised expenditure did not occur.
Ms D Magadzi (ANC), Chairperson of Portfolio Committee of Transport, said that a precarious situation existed. It was important to get a time frame as to when the interim contracts would end, because one could not have something locked into an ‘interim’ situation from 1997 for almost 20 years. To pinpoint the problem was difficult. Internationally there were trends to help deal with the situation.
Mr Hlengwa said the DOT’s explanation sought to dispute everything the National Treasury had told the Committee because it wanted to exonerate Department for not taking responsibility for contravening the PFMA.
Mr Booi said there was a case to be made. One could accept Mr Vilana’s explanation and contextualise it.
Mr Ross said that he was a bit lost in terms of competitive tendering when it had been stated that competition in tendering increased the cost. He felt that competition always reduced the cost.
Ms Moore said that capitalism was an ideology, and the issue was one of practice -- mainly the agreement, which in effect said that the conditions would be retained. Much of the benefit of tendering would be to get cost effective services.
The Chairperson said it was pointless to have a strategic plan that one could not implement. It should be informed by realistic and implementable variables. The Portfolio Committee on Transport should assist in this process. Interim permits needed to be attended to. Competitive bidding should also be looked at, to establish to what extent there had been collusion.
The meeting was adjourned.
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