Provincial conditional grants 3rd quarter 2015 performance: National Treasury briefing

Meeting report

Introduction by the Chairperson
The Chairperson noted that the purpose of the briefing by the National Treasury was to ascertain if departments were complying with the Division of Revenue Act and spending requirements. It was part of an ongoing engagement with Treasury and provincial departments. It had to be asked if spending on grants was achieving its purpose, to make major interventions. The policy objectives of these grants were critical.

National Treasury on third quarter expenditure 2015/16 on provincial conditional grants
Mr Emmanuel Pillay, Director: Provincial Budget Analysis, noted that the percentage spent at the end of the third quarter had to be as close as possible to 75% of the annual grant. Spending of the Agriculture grant was lowest for KZN, at 38.4% of the budget. For the Arts and Culture grant, lowest spending was by Mpumalanga, at 44.4%. For education grants, lowest spending was by the Eastern Cape, at 52.2%. For Health grants, lowest spending was by Limpopo, at 64.6%. For the Human Settlements grant, spending varied from 61% for Gauteng to 91% for KZN. For the Expanded Public Works Programme grants, the lowest spending was by KZN, at 44.2%. For the Social Development grant, spending varied from 2.7% for the Eastern Cape, to 67.9% for North West. For Sports and Recreation grants, the lowest spending was by Gauteng, at 59.4%. For Roads and Transport grants, the lowest spending was by KZN and North West, at 62.2% and 62.3% respectively.

Mr Lindsay Martin, Chief Director: Provincial and Local Government Infrastructure Unit (PLGI), spoke about the infrastructure grants. For the Education infrastructure grant, the lowest spending was by the Eastern Cape, at 38.7%. For the Health Facility Revitalisation grant, the lowest spending was by Limpopo, at 50.3%. For the Provincial Roads Maintenance grant, the lowest spending was by KZN, at 55.6%. Infrastructure challenges were, among others, poor planning and budget management at the provincial level; low expenditure due to slow supply chain processes, and inadequate oversight of professionals and contractors.

Mr Mark Fletcher, Chief Director: Health, discussed the National Health grant (indirect). The lowest overall spending was on the HPV vaccination grant, at 34%. There was progress, but the national department was involved in too many projects.

Discussion
The Chairperson thanked Treasury for the presentation. Attention had to be given to all factors that contributed to poor performance. Provinces that had been flagged required attention. There were issues with the Construction Industry Development Board (CIDB) rankings.

Mr O Terblanche (DA, Western Cape) referred to the infrastructure challenges. Both client departments and the Department of Public Works (DPW) were struggling. This had gone on for ages. He would suggest that Treasury indicate how the situation could be turned around. The DPW had been a problem forever.

Mr T Motlashuping (ANC, North West) asked that his ignorance be pardoned, but he could not understand how receipts could amount to more than actual spending as reflected in the presentation. He could understand how spending could be more than receipts, but not the other way round.

He referred to slide 15 on the Provincial Roads Maintenance Grant. Road infrastructure in North West was bad. On slide 8 on the Expanded Public Works Programme (EPWP) grants, it was explained that there were challenges in KZN about following the EPWP model. However, there was no similar explanation for the North West.

Mr L Nzimande (ANC, Kwazulu Natal) remarked that there was a constant challenge in the provinces about gaps in the monitoring of the indirect grant. National Treasury had no handle on the provinces. National Treasury and the Provincial Treasury had to meet quite often. There were technical and strategic issues between the two of them. The Committee had to be informed what kind of intervention was required of it.

Ms T Motara (ANC, Gauteng) asked if Treasury had looked at implementation mechanisms for the different provinces, especially on what hampered infrastructure spending. She asked if Treasury compared how the use of DPW or an external implementing agent (IA) affected spending. Although it might be an unfair question, it was important for the Committee to see how the implementing agents worked with local government or CoGTA. Municipalities were responsible for facing challenges, especially with regard to services. Municipalities were responsible for zoning. If it was not internalised in their Integrated Development Plan (IDP), it could hamper provincial departments in their spending. If there was not a concrete mechanism to deal with municipalities, there would be no change. Municipalities could not spend if they were not ready for it.

Ms Motara continued that Treasury had raised the issue of reporting, monitoring and evaluation. The Committee had to call in the Department of Performance Monitoring and Evaluation (DPME) or even CoGTA to see to what extent the DPME was responsible for what was supposed to happen. Both Treasury and the DPME were part of the process. She asked if DPME was taking into account what it had to do. When it came to implementing agents versus departments, there were varying mechanisms that could be used by provinces. It was not a case of one size fits all. But things needed to change. Treasury had to provide guidelines, and had to institute a process for corrective measures.

Mr C De Beer (ANC, Northern Cape) noted that the Division of Revenue Bill provided schedules to monitor spending. There were boxes that could be ticked. Another column could be added to the page, to monitor spending. He was worried and suggested that departments would have to be called in to explain underperformance in the provinces, as it was done in the Fourth Parliament. The Treasury briefing had to be read side by side with the analysis by the Committee Researcher, Ms Yolande Brown, in which graphs for land care and community library services were unpacked according to what happened per province. It was necessary to go back two or three years to identify trends and to see whether there was improvement, stagnation, or regression. A real picture had to be provided. The Chief Procurement Officer, Mr Kenneth Brown, had to present to the Committee. Challenges alluded to in slides 16 and 17 continued year after year, due to poor planning and bad management, and inadequate capacity. Reporting was insufficient, with late submissions from the provinces. There was a timetable. Poor performance occurred because someone was not doing his or her work. There was lack of compliance. Government was spending millions to assist and capacitate departments. The same issues came up year after year. It was evident when one read the Annual Report and the Auditor-General report. The Committee was responsible, as Parliament, to turn the situation around. Committee oversight had to put pressure on departments to perform better. Provincial Treasuries would be meeting the Committee in May. Today’s documents should be brought along. The provincial treasuries had to be taken on, and asked about their mechanisms for monitoring and evaluation. He asked about National Treasury monitoring and evaluation mechanisms. Committee resolutions taken at a previous briefing in August 2015 had to be engaged with.

Mr F Essack (DA, Mpumalanga) referred to what he termed the mind-boggling scenario on slide 9 on the Social Development substance abuse grant. He found it difficult to digest when he looked at the numbers and looked at the graph (it was later ascertained there was an error with the figures). Perhaps it had to do with an election campaign strategy. He referred to slide 17, and asked when the HR independent review was scheduled for the Health and Education Provincial Departments to determine if provinces had complied with the conditions in the Division of Revenue Act (DORA) for appointments. He asked what the repercussions would be for DORA non-compliance by the Departments of Health and Education.

The Chairperson noted that it was customary to consider the Treasury briefing before writing a report to the House. The Committee would highlight specific provinces performing below expectations. Meetings with those provinces had to be convened by the Committee for them to account. Today’s presentation would be used in engagement with the provinces. Issues had to be dealt with, particularly the poor performance on conditional grants. Constraints had to be identified. The Parliamentary Budget Office (PBO) and the Research Unit would also provide an assessment of the performance of conditional grants. Provinces that performed below par had to be met with, specifically KZN, Limpopo, the Free State, Northern Cape and Gauteng. There had to be vigorous oversight and accountability. After engagement with the provinces there could be a comprehensive report to the House.

Mr Pillay responded with reference to the Department of Social Development substance abuse grants. The budget for North West was not R12 million as stated on the slide, but R18 million. The province had implemented the project and spent money. The Treasury arrangement with the provinces was that the province would spend the money, obtain the invoices, and send it to the national department which verified the invoices and then transferred the money. In most cases invoices were submitted late to the department, and hence not verified. The province had gone ahead and spent R12 million of a budget of R18 million. That was why the province spent more money than it had. It probably used equitable share money to pay. Once the conditional grant was transferred to the province, they journalised the money out of there in their account.

Mr Pillay responded to Mr De Beer’s remark about going back two to three years to identify trends. Treasury had detailed information about spending of grants by province, which could be made available.

Mr Pillay explained why receipts amounted to more than spending, in some instances. Receipts were transferred to provinces, based on an improved tabled schedule, approved by Treasury. At the beginning of the year, once conditional grants were approved by national departments, a proposed payment schedule for amounts to be transferred to provinces was submitted to the national department. It was based on the business plan. For example, the school nutrition programme in the Eastern Cape would ask that a certain amount of money would be needed on 1 April, for April, May and June. That was what was entered into the payment schedule. He had indicated areas of poor performance in the presentation. Money was transferred to provinces, as per the business plan, but because of challenges, money was not spent, and ‘receipts’ were then more than ‘spending’. If one looked at the overall picture, R3.5 billion of money transferred was not spent. Under Social Development, spending was more than receipts. It happened that departments found some efficiency in their business plan, and were able to spend more. They could spend from their own funds and the funds transferred to provinces were then journalised out of there.

Mr Martin replied that in terms of overall performance, this was third quarter spending. There was still one quarter left in which to improve spending. On the infrastructure side, there were departments that had build-up commitments, without expenditure invoicing. The fourth quarter could show improved spending performance. It was to be hoped that the picture could look better at the end of the fourth quarter. A follow-up meeting could consider the fourth quarter data. There would be a clearer picture of who had underperformed or improved in the last quarter. With regard to the Provincial Roads Maintenance Grant (PRMG) in North West, he noted that the roads department had been placed under section 18 by the Provincial Treasury, which could impact on spending performance.

Mr Martin continued that Treasury worked with the Chief Procurement Office to set guidelines for IAs, with regard to dealing with the delivery chain. The Chief Procurement Office had issued an instruction note in November. There were standards for infrastructure procurement and delivery management, which set out minimum requirements for the delivery process, and minimum requirements for capacity for IAs. The standards would come into effect as from July 2017. There would be minimum requirements for IAs acting on behalf of provinces. Whoever wanted to act as an IA had to adhere to minimum requirements in dealing with performance and undertaking infrastructure procurement.

Mr Martin noted that Treasury was responsible for finance reporting, whereas reporting on performance was transferred to the DPME. The performance reporting function was shifted from Treasury to the DPME some years before. The DPME had to report on outputs achieved by government. The DPME was also concerned with value from expenditure, which provided a link between the two departments.

Mr Martin said that the independent HR capacity review would be in June. Provincial health and education departments would be visited with a report coming out in the second quarter of 2016/17. Recommendations were needed about how to proceed with the capacitation approach. It depended on conditions. Conditional grant funding was conditional. There would be an independent review, with recommendations about implementation mechanisms, and standards for infrastructure and procurement and delivery management. Standards would be provided for five different delivery models, in line with standard forms of contracts endorsed by Treasury, which was part of the instruction note. Treasury could provide details.

The Chairperson concluded that the information provided would be used in ongoing work with provincial and sector departments on conditional grants. The information provided by Treasury could be a useful tool for Members to use in their constituency work. This information could be used to solicit further information. The Committee would convene a meeting with the provinces. The secretariat would advise on an appropriate date. Areas of non-performance had to be dealt with, and non-compliance in some instances. All available instruments and research information had to be used, as the Committee continued to receive research on conditional grant performance. Other recommendations by Members would enrich the work on the way forward.

The Chairperson adjourned the meeting.