Progress made with regards to implementation of Memorandum of Agreement (MOA): Monitoring and Evaluation Committee (former Limpopo Administrators) briefing

NCOP Finance

02 February 2016
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Meeting Summary

The MEC for Treasury (in Limpopo) informed the Committee that Limpopo had moved from a section 100(1)(b) intervention to section 100(1)(b) in 2014 for all five government departments, according to a Cabinet decision. There had been a R2.1 billion overdraft in December 2011, but the cash situation was currently stable. Cabinet had approved complete withrawal for four departments, and conditional withdrawal for one department, namely the Department of Education. That department would be subject to further intervention in terms of section 18 of the Public Finances Management Act (PFMA), with a focus on finance and procurement processes. The Department of Education had received poor audit outcomes for four years, but a better outcome was expected for the current year. The Department of Health achieved an unqualified audit outcome. There were litigation issues. Contracts had to be investigated to see if government was getting what it was supposed to get. It was proposed that there was sufficient capacity through necessary appointments to have section 100(1)(a) lifted.

The National Treasury noted that the Inter-Ministerial Committee and the Premier of Limpopo signed a Memorandum of Agreement on 15 December 2014. Reasons for the intervention had been spelled out in 2011. The Monitoring and Evaluation Team was asked at the end of 2015 by the Inter-Ministerial Committee when Limpopo would be ready to have authority handed back. On 9 December 2015 Cabinet approved the complete withdrawal of section 100(1)(a) by March 2016 for the Departments of Health; Transport; Public Works, Roads and Infrastructure, and the Provincial Treasury. There would be conditional withdrawal for Education, for the Provincial Treasury to implement section 18 of the PFMA in the Department. The section 18 intervention was to be stringent, with a focus on finance and leadership failure. There were serious problems in the Department. The four departments for whom complete withdrawal was approved had until 31 march 2016 to attend to problem areas. Withdrawal would not bring an end to monitoring. Consequence management would be prioritised.

In discussion, an ANC Member was not happy about the meeting taking place when Cabinet had already approved withdrawal. The Chairperson answered him that oversight would not come to an end after withdrawal, and might in fact have to be intensified. On the whole Members did not express reservations about withdrawal, although the position of the Department of Education caused concern. It was advised that capacity building and compliance with the PFMA be prioritised with regard to Education. There was concern about lack of progress with disciplinary cases. There were questions about the status of internal audit, and with procurement and litigation. It was welcomed that the Department of Public Works was to become technically self-reliant, and would put an end to outsourcing. There were questions about rent prices and the possibility of government aquiring its own building. The effectiveness of the Limpopo Economic Development Corporation was questioned. The Chairperson concluded that good governance and finance management had to be prioritised. Consequence management had to be seen as the next frontier. The community wanted to know what government was doing with money.

 

Meeting report

Introduction by the Chairperson
The Chairperson remarked that 2016 was bound to be a year of challenges, in terms of work to be performed, decisions made and service rendered, especially to the poor. The current meeting was taking place on a significant date. It was announced on 2 February 1990, in the National Assembly, that Nelson Mandela would be released, and the ANC unbanned. At the time, Mr Mandela had stated that freedom and justice were ‘irreversible”. That was why MPs were here deployed to Parliament and DGs and Premiers deployed to do the best for “our people outside”.

The Chairperson said that an apology was received from the Limpopo Premier, who was attending a Premier Lekgotla. This was the first time that the Premier was not present. The Monitoring and Evaluation Team was led by Mr Edgar Sishi of the National Treasury. The global and domestic economic environment was currently a tough one. Best results were to be expected from every public servant in 2016. There had been seven engagements with Limpopo since 2012. A press release on 19 January 2012 had stated reasons for the section 100(1)(b) intervention in Limpopo. Progress made had to be assessed in terms of assessments of 2012 and 12 August 2015, in terms of good governance and sound financial management, compliance with the Constitution and the PFMA, and good communication. The Committee would then make a statement in the National Council of Provinces. Monitoring and evaluation would not stop when Limpopo moved out of the section 100 intervention.

After all the guests introduced themselves, the Chairperson thanked everyone for attending the meeting and replying to the invitation. Their presence helped to tighten the relationship between the NCOP and the provincial legislatures. They all had the same objective.

Briefing by the MEC (Provincial Treasury)
Mr Rob Tooley, MEC for Limpopo Treasury, noted that Limpopo had gone from a 100(1)(b) to 100(1)(a) intervention. There had been a R2.1 billion overdraft in December 2011, but the cash position was currently stable. The province will finish this financial year relatively healthy. Most DC processes were concluded. In the Department of Education, section 18 of the PFMA was to be implemented, with the focus on finance. An HOD for Education was being appointed. There had been two headcounts during the intervention, which made it possible to release money, especially from employee compensation. HR records were straightened out. The procurement process was investigated, notably with regards to school furniture and nutrition. The Department of Health progressed towards an unqualified audit. The CFO was under investigation. There was an overspending challenge of R250 million, which was being managed. In the Department of Public Works, extra funding was made available to appoint specialists like engineers, architects and quantity surveyors. There were challenges around revenue collection. In the Departement of the Treasury, a team from National Treasury was called in to help with technical matters. There were challenges related to Sports, Arts and Culture. With regard to contract management, all contracts were investigated to see if government was getting what it was supposed to get. The Department of Education had received poor audit outcomes for five years, but a better audit outcome for the current year was expected. Litigation issues required a discussion. Companies that had had contracts cancelled were suing.

Mr Tooley said that the province had the capacity and the appropriate appointments in the right positions to confidently ask the Committee to recommend to the NCOP that the section 100(1)(a) intervention be lifted.

The Chairperson thanked Mr Tooley for being “blunt” and “to the point”. He advised that a presentation on the litigation be prepared. Executive powers were to be handed back to the province. The section 100 intervention had to be exited totally. It was decided in Novemeber 2013 that there had to be a smooth handover.

Briefing by the National Treasury
Mr Edgar Sishi, DDG, Leader of the Monitoring and Evaluation team, noted that reasons for the intervention were discussed in 2011. There was to be an MOA between the national government and the province, based on quarterly and monthly evaluation. The Monitoring and Evaluation team was asked by the Inter-Ministerial Committee at the end of 2015 when there would be sufficient progress to justify handing back authority to the province. It was asked which departments were not yet ready. Site visits and meetings with officials were conducted, and there were reports to Cabinet split according to departements. It was concluded that all departments except Education were ready to exit by 31 March 2016. There was still another quarter left for feedback about things that remained to be done. With regard to Education, the Provincial Treasury decided that there had to be a stringent PFMA section 18 intervention. There had been leadership failures since 2011/12 related to the non-delivery of books and poor HR management.
 
Discussion
The Chairperson remarked that the presentation of 12 August 2015 contained two pages on the Department of Education. The DG had an important role to play because this person was the kingpin at the top of the administration. There had to be a relation of confidence and trust between the DG and the Premier. There were workshops and a weekly forum for HODs and regional managers, to enhance intergovernmental relations (IGR). There had to be a filtering down to grassroots to improve service delivery.

Mr Sishi responded that there was a robust IGR process between National and Provincial government. Withdrawal of the intervention would not put an end to monitoring and oversight. There were structures in place for long-term monitoring. There was sound political IGR for intergovernmental management and relations. Every province was monitored twice a year, with guidance given to provinces. Monitoring activities would continue.

The Chairperson asked National Treasury if every circuit in Limpopo had a circuit manager. It was an extremely important position in education. He added that he had also posed this question previously in 2012.

Mr Mzwandile Matthews, Limpopo Administrator, National Treasury, replied that the question had to be put to the MEC and the acting HOD. He had attended a meeting between the Minister and the MECs the day before. One of the points that had emerged from that meeting was the point of convergence between the monitoring results of the Department of Basic Education (DBE) and the provincial departments. The focus of the meeting was on improved performance in teaching and learning. There had been a Lekgotla of education departments two weeks before, at which there was a candid review of the state of education in the country. There had been sensational media reports in regards to this. The Minister found herself in a dilemma regarding her powers viz a viz the MEC of Finance. She wanted to know the terms of reference for intervention in terms of section 18, so that rollout could proceed. The question was what the Treasury had to do. Mr Tooley had referred to a 100 page audit report received by the Department of Education. The Minister had met with the Auditor-General (AG) about audit findings and recommendations, and consequence management. A disclaimer was received, and the AG stated that if there was a worse audit opinion, Education would have received it, due to the poor quality of financial statements. The AG had considered withdrawing from the province unless there was improvement. The HOD had asked assistance from the DBE. There was no-one to deal with the issues in the Department, but the acting CFO had claimed that the Department had the people. He was advised to accept assistance, but turned it down. The AG was asking what actions were taken to manage the situation. Consequence management was a priority. There were disciplinary matters dealt with at the end of 2014, related to school nutrition funds and the manipulation of Persal. Officials were reinstated without being charged. The monitoring team worked well with the acting HOD. The Treasury could act in terms of section 18.

Mr Ishmael Kgetjepe, Limpopo MEC for Education, noted that there was continuous engagement with the Minister and the AG, on disciplinary issues. It had not been handled right by the M&E team. He was working with Mr Tooley on how to approach legal issues. There was a lack of files for court matters. Issues concerning the HOD could have been handled better. Vacancies were being filled, including those for circuit managers.

Mr T Motlashuping (ANC, North West) remarked that he was perturbed by the fact that Cabinet had already taken a decision. What was expected of the Committee under the circumstance? If inputs from the Committee was to be part of a talk show, he would refuse to comment.

The Chairperson replied that section 100 empowered the national government to intervene in the provincial administration. When a province could not fulfill its executive obligations the national executive could intervene and take any steps required. Limpopo had gone from section 100(1)(b) to section 100(1)(a). Reports were circulated in 2014 to obtain background. The national executive had to take a position which was communicated to the NCOP. Section 100(2) could then kick in. If the national executive decided to intervene in terms of section 100(1)(b), the NCOP had to be told in 14 days. The NCOP was granted 180 days to decide on the matter. In this case a decision was taken immediately. The NCOP could view the matter regularly and could recommend to the national executive, which was the reason for the meeting of the day. Parliamentary oversight would not end on 31 March. It would continue for each Select Committee in the NCOP. The fiscal position of each province would be looked at in February. The Appropriations Select Committee could look in more detail at spending and performance. Since 2012, Parliament was asked why it could not see the need for intervention coming. Much depended on how Parliament engaged with quarterly reports. A longer working year was needed. There was no reason why Parliament could not start on 13 January or close on 12 December like the schools. The question was how oversight was to be deployed in the different constituencies. The MEC had to receive a report three times per year. There had to be reports on clinics, hospitals, creches and roads. At the time of the induction of the Committee in 2014, the Deputy Minister of Cooperative Governance and Traditional Affairs (CoGTA) had addressed it on regulations for intervention. The Department of Public Service and Administration reviewed section 100(3). There were concrete regulations. Good communication was essential.

Mr Motlashuping said that he had a different interpretation. It was stated that there had been an overdraft of R2.1 billion, but the position was currently stable. It might not be known how stable things were. There was a lack of movement on disciplinary cases. He asked about improvement with Education and Public Works AG issues. With regards to auditing issues, the important question was whether the internal audit was effective. Education issues were worrisome. The NCOP had to engage to reach informed decisions. There had to be a clear picture of education in Limpopo.

Mr F Essack (DA, Mpumalanga) asked Mr Tooley to quantify the healthy cash position he had referred to. He also asked him to comment about the investigation of procurement contracts for school furniture and nutrition, and the CFO. He asked about the status of investigations. During an oversight visit he had raised the issue of ridiculous rentals per square metre in Limpopo with the Department of Public Works (DPW). He asked if there was a timeline for government buying its own properties. Litigation costs had gotten out of hand. Nothing had been said about the Limpopo Economic Development Corporation. Questions had to be asked about returns on investments, with expenses and financial statements checked. It could turn out that the LEDC was nothing but a burden.

The Chairperson asked the Chairperson of the Finance Committee in the Limpopo Legislature to comment.

Mr Soviet Lekganyane, Limpopo Legislature Finance Committee Chairperson, noted that it was said at the beginning of the meeting that there had been nine meetings with the Limpopo provincial government. He was not surprised, as he was formerly in the Finance Portfolio Committee. The MEC presentation was accurate, and he agreed with its contents. The MEC had proposed complete withdrawal for four departments. The situation in the four departments had indeed improved tremendously. All agreed that there were challenges in Education. But there were serious challenges in education nationally, which affected each province differently. Limpopo was not so different from the Eastern Cape or KZN. It was an operational problem. The seven investigated officials would come and go, but strategic administration problems persisted. There were problems with receiving clean audits. It was not confined to Limpopo. Support for the provinces was needed. Capacity had to be built to run education in the country. Education colleges had been closed down, and past decisions had their effect in the present. The crucial question with regard to complete withdrawal was that of what the destination was to be. There had to be a uniform system. The Provincial government and the ME team had worked together for three or four years. There had to be a point of convergence. It was not proper to pose questions to each other at the current forum. That had to be done in forums that the entities themselves convened.

Mr O Terblanche (DA, Western Cape) thanked all concerned for the hard work that had gone into the intervention. He had not been part of the Finance Select Committee in the beginning, and it was the first detailed report he had heard. It was commendable that the DPW was moving towards flying solo, through appointing professional people. He asked to what extent DPW planning was in-house or whether consultants were used. Education was not yet out of the woods. There had to be a proper implementation plan with time-lines.

Mr S Mohai (ANC, Free State) noted that the Limpopo Premier had stated that the section 100 intervention had led to serious critical introspection about good governance. Management resources and accountability were priority issues. There had been progress in a number of areas. The Finance Select Committee had to look at accountability and progress towards attaining policy objectives. There were serious issues with Education. He asked if section (100)(3) was imposed because of disregard of previous legislation. He asked if PFMA provisions were being enforced. Introspection helped to promote concern with efficiency and respect for the rule of law. The extent of compliance with the PFMA in all areas had to be known. There were issues of capacity building in the Department of Education. The Department had to attend to such issues, and the National Treasury had an obligation to assist. He was looking forward to the last quarterly report.

The Chairperson noted that section 18 of the PFMA dealt with the powers of the Provincial Treasury to intervene in another department. The AG report provided an action plan about what to address. The question was how it could be spread over twelve months. There had to be workshops that included the AG and National and Provincial Treasuries. Actions taken had to be monitored in terms of the AG findings. The AG not only considered finance, but also performance. There was no Standing Committee on Public Accounts (SCOPA) in the NCOP; hence the Finance Select Committee and the Appropriations Select Committee had to play that role. Compliance with legislation had to be monitored.

Mr Tooley responded, with regard to internal audit, that the Department of Education was kicked out by internal audit, on account of a lack of response. Section 18 had to be adhered to. There was currently R3.5 billion in the bank account. A statement was received every day. Over-expenditure could be prevented, if the seriousness of the current financial position was kept in mind when contracts were procured. Individuals had approached the Minister to investigate tenders. The Department of Education in Limpopo was like a sieve. Nobody would show up for a meeting for strategic planning, but the opposite was true for a meeting about procurement. The Treasury had to run procurement to turn the situation around. In the matter of the CFO of Health, there were 308 service providers on a budget of R940 million. The Premier was not happy and there was an investigation process. It was essential that children be fed, but terms of reference had to be followed. The CFO of Health was being investigated by the Hawks. Dr Ramathuba, the MEC for Health, could say more on the matter. There was a directive from the National Department of Public Works about how much could be paid out to landlords. The cash situation was too tight for the procurement of buildings.

Mr Tooley added that litigation had to be discussed with the intervention team. Where contracts were cancelled after goods had been delivered, the contractors sued for goods delivered. The Premier and the MEC for Finance had met with the President about the Limpopo Economic Development Corporation. If the Corporation did not deliver it would be closed down. According to the PFMA the province had to be self-sustainable within three years. The DPW had to be able to rely on its own people by the end of the following financial year. The policy was to use own people and end outsourcing. The policy objectives of the ruling party would be pursued in the section 18 intervention.

Dr Phophi Ramathuba, MEC for Health, addressed the question of the CFO of Health. The CFO was charged but the Hawks placed the case on hold. The CFO was also a key witness in the case against the former MEC of Health. There was currently an acting CFO, but the position needed to be permanently filled. She hoped that the matter could be finalised before the end of April.

Mr Sishi responded that the biggest challenge facing the monitoring team was the importance of national legislation to regulate. Intervention with regard to disciplinary cases required coordination between the Finance Minister and the National Treasury. He had told former Finance Minister Nhlanhla Nene that the team did not khow how to do things properly. There was a lack of rules to manage by. An anti-corruption task team was only introduced at a later stage. CoGTA had started to draft legislation. When a section 100 had to be staged again, there had to be legislation. There were too many things to be learnt during the current intervention.

Mr Sishi continued that there had been a Cabinet decision that the Economic Development Corporation had to be evaluated in terms of effectiveness. An evaluation was done by the provincial executive. Government had to ask if the Corporation worked. It was a process. Cabinet awaited a report from the team. There was engagement with the Reserve Bank. With respect to timelines, he stated that the four departments had until 31 March to sort out remaining issues. An assessment of problems in the Department of Education was based on reports received. The situation was serious and much work was required. Problems experienced were old problems. The Western Cape Education Department was the first of the provinces to obtain a clean audit, in the current year.

The Chairperson remarked that if Health could obtain a clean audit, Education could do so as well. There were Committee reports that could go to the Minister of Finance. The NCOP had to play its role to give direction. After withdrawal from section 100 all documentation would go to the library for research and reference documents. But the Finance Select Committee did not want to see a section 100(1)(b) intervention again. Objectives of good governance and finance management were already spelled out on 9 February 2012. Consequence management was the next frontier. Looters had to be gotten rid of. All sectors of the community were asking what government was doing with money.

The Chairperson thanked all who participated and adjourned the meeting.

 

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