National Treasury on its 3rd Quarter 2015/16 performance

Meeting report

Opening remarks
Ms N Louw (EFF) wanted to express her disappointment at having only received the presentation that morning. The letter from the Secretary of the Committee stated that the presentation was required on 7 April 2016, but it was only received on 12 April. National Treasury (NT or Treasury) could not expect Members to receive a presentation at 9am and deliberate on it at 10am. This must not be allowed going forward.

Dr M Figg (DA) said this is unacceptable and it is a recurring problem. Members need a plausible explanation on why the presentation was only being received now.

Dr C Madlopha (ANC) said the Committee cannot emphasise how unacceptable this is any more. Members need to come to meetings prepared, which means they must have a chance to read thoroughly and thereby be able to make positive contributions. In future if the Committee gets a document in the morning, it will not be accepted.

Ms S Shope-Sithole (ANC) said the purpose of this Committee is to follow the money and the President has requested Members to do things differently. Members are serious and are representatives of the people, not merely making a show, and they need to be alive to the situation of the day; there is an economic meltdown and slow growth. Members need to read, research and discuss these matters with communities, because part of Members’ responsibilities is facilitating public participation. If she were to get a document just before the meeting, then when could she be expected to engage her constituency?

Mr A Shaik Emam (NFP) echoed the sentiment of other Members. He appreciated receiving a briefing but NT must explain what challenges it faces which prevent the timeous tabling of documents. Unless the Committee knows for sure that the documents will be received on time, the meetings must not even be scheduled.

The Chairperson agreed. However, he was advised that the National Treasury Report: Expenditure Q3 2015/16 (the Report) was made available some time back, being put into Members’ pigeon holes. He agreed that the Powerpoint presentation also needs to come in time, so that Members have a summary of what is in the more extensive document. He too would appreciate an explanation of the reasons for the late tabling and the Committee would appreciate this. Before NT answered, however, he wanted to plead with Members that, despite these concerns, the meeting should proceed. Members will get whatever information possible and raise what they are able to. As the Committee digs deeper into the accompanying document, Members will be able to raise further questions in writing. NT must understand that when a quarterly report is given to Members, they do follow up with any relevant Departments and exercise oversight over the financial performance of Departments. Ms Shope Sithole had rightly emphasised that it is part of Members’ mandate to ensure public participation on budgets, outcomes and expenditure, and if Members were limited in doing this by getting late documents, this was a problem.  NT would know that it is the first port of call for comment, before the Committee engages any other department on its expenditure, and it is critical that NT and the Committee communicate early and engage extensively on issues which are unclear. He was sure NT would like to see Departments performing better.

Mr Dondo Mogajane, Deputy Director General: Public Finance National Treasury, agreed that NT would obviously want Members to have the information, because then the Committee would be able to ensure that departments spend their voted funds correctly, by conducting oversight. He apologised up front and took full responsibility for Members only receiving presentation that morning. The meeting had been rescheduled and therefore the Report was available to Members more than a month ago, and this presentation was largely the same; he would, however, ensure that the situation was corrected in future.

Quarter 3 of 2015/16: Departmental expenditure: National Treasury briefing

Mr Mogajane said, by way of introduction, that the NT had taken note of the decision by the Committee that it would be beneficial to change the mode of engagement with Departments. NT wanted to be more inquiring and more probing. NT realised that in some cases the Committee does not have the means to engage all relevant departments at the same time and the more information that Treasury can bring, the better the Committee’s engagements would be. NT was now meeting departments on an ongoing basis, and in the past two or three months it has become “somewhat of an irritant” to Departments with probing questions – such as the Office of the Chief Procurement Officer (OCPO), with newly dedicated capacity, asking departments how many supplier payments are still outstanding, how many are in the process and how many invoices have been processed. NT is overall satisfied that the spending this quarter is between 70% and 75%, more or less the right benchmark for spending, although there will be virements. Members had previously asked what happens when there is underspending on drawings and he explained that it affects government’s debt position, but he is comfortable that the drawings are matched to expenditure. Government is almost on par with this and is able to manage its borrowing programme.

Mr Mogajane said direct charges are explained in the Report in detail at page 7. 43% of expenditure in the third quarter (Q3) consisted of direct charges against the National Revenue Fund (NRF). This totalled R391.1 billion, of which R287 billion was transferred to provinces as the equitable share and R83.6 billion was used to pay state debt costs. This was a nominal increase of R7.1 billion or 9% in state debt costs, compared to Q3 in 2014/15. Furthermore, state debt costs consumed 9.2% of total expenditure thus far in 2015/16, a similar proportion to that in the previous financial year. This indicates that South Africa is on track with its debt planning and servicing its debt.

Mr Mogajane said that in Q3 total voted expenditure was R513.9 billion. R345 billion of this was transferred to national departments, and R149 billion of this was spent on operations, the majority of which was for compensation of employees.

Operational spending increased by R11.3 billion, compared to Q3 of 2014/15.  R98.4 billion was spent on compensation of employees, which was a nominal increase of R8.6 billion or 9.6 %. The year on year growth is about 10%, which is not far off of the inflation estimates. NT is comfortable that government’s Q3 spending is on track and on par with the previous year’s. R41.9 billion was spent on goods and services, mainly in the Justice, Crime Prevention and Security (JCPS) cluster. This was a year on year increase of 4.4%. R9.2 billion was spent on capital assets representing a 10.3% increase. This is indicative of slow spending on services around water and sanitation, which will be explained further later, but was mainly due to project management and the complex nature of infrastructure delivery in this department. The upgrading of South African Police Force (SAPS) capital assets also saw some slow spending. He emphasised that the bulk of capital spending happens in provinces. and therefore it will not be seen with the national departments, but will be visible with the equitable share spending. 

Mr Mogajane said R31 billion was spent on administration, representing 20.5% of operational expenditure, with the largest portion being in the JCPS cluster again. He noted that smaller departments, such as those of Women, Communications and Economic Development spent on average 65% of their budgets on administration. All departments had been submitting virement requests, often on the last day of the financial year. He wanted to merely mention that now, but would provide detailed, quantified information with the Q4 report. Those departments that had requested late virements were displaying that budgeting, financial planning and spending was questionable in these Departments, and they wanted to “dump” money that they could not spend from one programme to another, hoping to spend it there.  Having said that most departments were spending around 70%, there were some who were spending less than 65%, and the pressure would be seen in the Q4 report.

Mr Mogajane said about R345.6 billion was transferred by departments, which represented nominal growth of 7.4%.  About R104.3 billion was transferred to households, primarily for social grant payments, driven by the increases in grants. NT had transferred about R127 billion to provinces and municipalities, mostly driven by the local government equitable share, human settlement, infrastructure and various health grants. Treasury, due to its drawings schedule, was never late with transfers and no province or municipality could complain that NT had not transferred money on schedule. It was worried whether, having transferred the money, that money would be spent appropriately and efficiently. About R59.4 billion had been transferred to departmental agencies and accounts, which included SA National Roads Agency Limited (SANRAL), SA Revenue Services (SARS), National Student Financial Aid Scheme (NSFAS) and SA Social Security Agency (SASSA). About R27.7 billion had been transferred to public corporations and private enterprises, mainly to the Passenger Rail Agency of South Africa (PRASA) for the rolling stock fleet, and to higher education institutions through subsidy grants.

He concluded that in Q3, the total increase for voted expenditure was R51.7 billion, or 11.2%, compared to Q3 of 2014/15. Q3 spending increased by R13 billion or 9.4%, the bulk of which is in compensation of employees. Funds transferred increased by about R23.9 billion.

Spending indicators
Mr Mogajane said he would move to spending in specific cluster areas, to facilitate a discussion on trends identified. He listed these as follows:

Urban Development and Infrastructure
There was an increase in transfers by the Department of Human Settlements to municipalities at about R20.9 billion, which represents an increase of R689 million compared to the same period the previous year. This means houses are being built, but the challenge is to quantify the numbers to see if housing is being delivered. This is also seen in the transfers of conditional grants seen.

Capital expenditure in the Department of Water and Sanitation (DWS) listed that 49.2% of funds allocated have been spent, which is a 102% increase compared to last year, due to delivery problems experienced previously.  However, the reality is that only 49.2% has been spent after nine months, so this did not match the benchmark of 75%. NT knew there are challenges around water provision, with the drought, and that the building of dams is slow. This is a red flag which NT wants to put to the Committee.

The over expenditure in the Road Programme in the Department of Transport vote is due to transaction fees that are being collected by Road Traffic Management Corporation (RTMC) and not paid to the Department of Transport (DOT) to cover eNATIS system costs. This is an on-going conversation. The NT had met with the RTMC, and discussed various historical reasons why transfers to DOT are not taking place; there looked to be over-expenditure on paper but this was not in fact so once everything was balanced out. NT had emphasised that monies collected needed to be transferred to the DOT. RTMC was worried because of the funding of its operations and the roll out of the national traffic system, which did not provide for spending on the new programme, so that RTMC was paying for that from the funds collected. NT was trying to ensure delivery of services to all road users.

The Department of Telecommunications and Postal Services (DTPS) has only spent 5.5% of the R352.6 million allocated to broadband, due to delays in decisions regarding procurement. Broadband roll out was very slow and the Department was not coming to the table as expected. The main concern was procuring of the service provider, and there were some legalistic issues here, because although the President said in the State of the Nation Address in 2015 that Telkom would provide the broadband rollout, this could not be done without getting condonation from NT. NT thought that a proper procurement process had to be undertaken, to avoid challenges, and there had been healthy contestation between the lawyers for the two departments, resulting in no money being spent. The DTPS was one of those most prominent in the virements. In the last week of March 2016 it wanted to move money between programmes. This was problematic, because of traditional underspending.

There was generally slow spending of the funds towards disaster relief, due to slow verification of costs and delays in requesting disbursements. This was an indictment on government, who must take full responsibility, especially since it was aware of the pending disasters through drought. Verification of costs is a difficult exercise, to ensure the money being disbursed matches the relief required. The Department of Cooperative Government and Traditional Affairs (COGTA) must act, as the disaster management is within that Department.

The Department of Energy (DoE) is still displaying slow spending on the solar water heater programme, due to a shift towards a new delivery approach, and this was a clear example of the effect of changes mid-way through programmes. The money had been lying in Eskom, where R1.2 billion was not spent, and NT had requested that it be repaid to NT about twelve months ago, so that it could be reallocated through the NRF. This new delivery approach was causing endless problems and prevented the project from taking off in the way Parliament had intended.

He emphasised that all departments should be asked to come and account for their approach to spending.

Defence, public order and safety
Mr Mogajane noted that the Department of Defence (DoD) overspent, having paid out R31.9 billion at the end of Q3, while scheduled drawings were R31.4 billion. This was mainly due to increased costs in compensation of employees, due to salary increases. This was not a major concern, because it is still within the quarter. South African Police Service (SAPS) showed slow spending, mainly on  compensation of employees, due to vacancies.  This was an issue of planning versus implementation and it should account, because SAPS knows there are vacancies and that police need to be on the streets, and the committees must take note of this and ensure that it does have sufficient personnel. SAPS also had 9 413 vacancies at the end of the quarter, mainly under the visible policing and detective services, which are core to SAPS’ programmes. All NT can pick up is that SAPS is in the process of filling posts, but the accounting officer should account. During 2016/17, money was taken away from compensation of employees where posts were not filled, and NT would like to have any money sitting idle returned and reallocated to other programmes in need, particularly where there were repeated problems and there were trends of vacancies not filled.

The Department of Justice and Constitutional Development, without its direct charges, underspent by R380.7 million. The major contributor was delay in filling vacant posts, outstanding merit awards and delays in the implementation of the Integrated Justice System, due to delays in procurement.

He noted that there are procurement issues in several other departments. The Office of the Chief Procurement Officer has insisted that departments have procurement plans for all programmes or projects where procurement is critical. As systems are upgraded in the OCPO, these departments will need to begin aligning their spending with their procurement plans.

Independent Police Investigative Directorate (IPID) underspent, again on vacant positions. NT has been engaging Departments on resignations, because nothing stops accounting officers advertising the positions in the same month that the resignation is received. Natural attrition is understood, but if vacancies arise through movements of staff this is unacceptable. If one department manages the process well, then all should, and it was incorrect for accounting officers to argue that it would be irregular expenditure to advertise before the incumbent had actually vacated the post. IPID had 51 vacancies, 31 in the investigations and information management programme, its core service delivery programme. Delays also occurred in screening and vetting by the State Security Agency (SSA) and by the freezing of all funded vacant posts to implement the 2015 compensation increases. IPID is now setting up its own vetting to counter the SSA delays, and the relevant committee should take this up with the SSA. NT had indicated previously that the 2015 wage agreement was a challenge, particularly for smaller divisions like IPID, because there was not enough scope to look through baseline allocations to address salary adjustments, which was necessary because the agreements exceeded the amount of money available at the time. It was a costly and problematic wage agreement, and government had spent R67 billion on it, despite only R31.7 budgeted.

The Office of the Chief Justice is underspending, because of delays in filling judges' posts and outstanding invoices for government vehicles. Delays in vacant posts are costing money, because money was locked in and not available for spending on other programmes.

NT had made several requests to the Civilian Secretariat for the Police Service to implement stringent cost containment measures, but it was still highly likely that it would overspend, having already spent 77% of the adjusted budget at the end of quarter 3. Strictly speaking, department who overspent were breaking the law, because the Appropriations Act only allows them to spend their allocations. NT would continue to engage with the Civilian Secretariat to help it stay within budget. 

Administration services
Mr Mogajane said the Jobs Fund is still a concern in the NT. Slow spending was experienced mainly due to project delays, extension of the implementation period and less than favourable economic conditions. The Jobs Fund was a good candidate for extra fund, but the concerns resulted in money being taken away in the 2016/17 budget. The R2 billion funded through the Special Appropriation Act for the new Development Bank was only transferred in Q4.

The Department of Public Service and Administration (DPSA) spent slowly, due to vacancies and delayed purchase of furniture.

In the Department of International Relations and Cooperation, delays in foreign construction projects and transfer payments only being due in Q4 led to slow spending, but it would pick up in Q4.

Education and related Departments
In the Department of Basic Education (DBE), the School Infrastructure backlogs grant had seen slow spending, due to delays in the submission of invoices by implementing agents, and if this was not addressed it would lead to underspending overall in 2015/16. It would be interesting for committees to engage with the DBE to find out if there were other reasons. There is persistent low spending with the Maths, Science and Technology grant in five provinces, since its inception, and DBE should intervene to ensure that the grant's objectives were met.

The Department of Higher Education and Training (DHET) showed slow spending in the university education programme, because of delays in payments for the infrastructure-earmarked grants, which had to be submitted by the universities and analysed by the DHET against certain criteria before disbursements could be released. This included capital projects at Sol Plaatjie University and the University of Mpumalanga. NT had met with DHET to ensure that students at these universities were not disadvantaged, because student housing was an issue at both. 

Health and Social Development
Mr Mogajane said there is generally low spending in the National Health grant and in the Health Facility Revitalisation grant only 60.9% has been spent, despite a R300.4 million reduction in the allocation. This was due to major capacity constraints and too many diverse project types. In relation to the National Health Insurance (NHI), delays in the chronic medicine dispensary roll out were due to problems with the pick up points and storage facilities. This was one area where it was felt that NT procurement and distribution of medicine could be tested, to see how a fully rolled out NHI would look. There was also slow spending with the human papilloma virus (HPV) vaccine, but this would improve with the roll out of the second dose to be administered in Q4. This grant is timed and the vaccine can only be administered at certain times. NT expected it would be fully spent. The inability of local suppliers to meet condom volumes was a concern, which was worsened by the new condom specifications. The Department of Health (DoH) was only able to spend 53% of the allocation for non-profit organisations, mainly due to delays in transfers to HIV and AIDS organisations and new organisations were still being appointed for the implementation of the HIV/AIDS awareness and prevention programme. Despite the slow spending here, more money had been allocated to TB and HIV/AIDS programmes, in the belief that there would be full spending once the basics were in place. DOH spent 5.8% of its allocated budget for provinces and municipalities, due to delays with the Substance Abuse Conditional Grant transfer., and this was quite unacceptable, particularly given the rise in substance abuse in communities.

Economic Services
The Department of Public Enterprises (DPE) showed slow spending due to reduced payment of the second tranche of the Eskom transfer, relating to the Eskom Special Appropriation Act. This was money from the Vodacom sale. Spending would be apparent once the transfer was made, but it had to go through the DPE to be accounted for. Slow spending was also seen in programme 3, due to vacancies in skilled posts, resulting in a lack of project management capacity and project delays.

The Department of Economic Development (EDD) experienced slow spending, because of slow filling of posts and delays with projects such as the Presidential Infrastructure Coordinating Commission (PICC). 

Mr Mogajane emphasised that filling of vacant posts was a problem throughout government departments and the Department of Public Service and Administration (DPSA) and National Treasury together had to find a way to address this. From a budget and planning perspective, if money had not been spent for a long period of time, the budget office would be the first to try to redirect the funds. IN Q4 there would be a demonstration of the effects of not filling vacancies.

The Department of Small Business Development (DSBD) also showed slow filling of posts. There were delays in transfers and subsidies resulting from delays in the opening of the application process for incentives, but spending on the incentives had picked up. That was a result of poor planning and budgeting. It was a consideration for the 2016/17 budget, and it was realised that in this constrained fiscal environment, money cannot be allocated to projects or programmes before plans are available. The language around the Cooperative Incentive Scheme and Black Business Supplier Development Programmes was correctly set out in the 2015 budget process, but the spending showed that the planning was not done correctly. There would have been nothing wrong with limiting the amount of money allocated in the first year, and then committing to more funds in the future.

The Department of Trade and Industry (dti), had slow spending due to slow transfer payments, and in compensation of employees and goods and services. Slow transfer spending was mainly seen in the Incentive Development and Administration programmes. The major reasons were administrative difficulties such as expiry of consulting engineer contracts, and outstanding quarterly reports from provinces on claim files. This, however, showed that the dti was reviewing the deliverables targeted by the incentives. The 2016/17 budget has indicated that government wants to go deeper into the spending on industry incentives, which would include the Employer's tax and Jobs Fund that NT handled, as well as several incentives within the dti. Government wanted to have an expenditure review, in particular around incentives, without making industry uneasy.

Mr Mogajane said another reason for slow spending had been the integration of the Technology and Human Resources Industry Programme (THRIP) part of the National Research Foundation, into dti, and he  cautioned that dti has maybe become too big and government has to re-look at the programmes in that space. Government would have to look carefully at what funds can be taken away from dti and directed towards the Department of Small Business Development or Department of Economic Development.

Mr Mogajane concluded with an overview. The first problem was that vacancies are not being filled on time by departments. Secondly, NT was very concerned about departments within the Urban Development and Infrastructure cluster, particularly DWS and DoE, and it was strongly recommended that the Committee should call them in, with NT present also. If the Jobs Fund did not start performing in Q4, this would be another concern.

Discussion

Dr Madlopha said this briefing clearly indicated the challenges and achievements government had around expenditure. She asked if the expenditure of the Departments was in line with their predetermined objectives; spending was one point, but the impact of the spending was key. She also asked if these predetermined objectives were aligned to the Medium Term Strategic Framework (MTSF) and the National Development Plan (NDP) priorities. Members shared the concern on the non-expenditure in the JCPS and Urban Development and Infrastructure clusters. She asked for more information on the shift to new delivery by the DoE and how this had led to slow spending. The government had promised a rollout of solar heaters. She was concerned about the JCPS cluster, as challenges would be apparent through failing to spend on core delivery programmes. There was very high crime, and she noted with alarm the lack of spending in areas such as the Integrated Justice System. She would suggest inviting those Departments before the Committee. NT had correctly indicated that the MTEF was in place so that departments would plan their spending over three years, but there was no point in thinking about the budget before doing the planning. South Africa cannot continue to borrow money which will not be spent. Lack of capacity to deliver was an issue, but at the same time there are vacant posts – in SAPS there were 9 413 – whilst the country faced a challenge of unemployment. Government is supposed to employ, but it is not. The departments concerned must explain this. She also noted that if the DWS could not focus on its core mandate and address the drought, then what was it doing?  There must be an understanding of the consequences and it was not enough for departments merely to state reasons, because any implementation plan should be based on research and feasibility studies which should indicate a timeline. She did not understand what would prevent a department from doing transfers, and how they just did not pass the money on. She agreed that those departments named by NT had to be called to the Committee to engage. It should be questioned whether incentives were delivering value for money. Were they achieving the aims of government, or were big corporations being given the money without making a difference on the ground? 

Mr Shaik Emam said NT had provided very valuable information. He asked if there had been improvements in the 30 day payments system, and had the measures put in place improved the whole situation. He was pleased to hear that the borrowing and spending patterns were better aligned. He asked what was the main problem causing underspending and late spending, and said that a lot of work seemed to be done in Q4, giving rise to fiscal dumping, where there might also be spending without the real and relevant outcomes. He asked if this happened because departments were not planning properly to spend well in Q1, and were not ready to spend when the allocations came through, and pointed out that the planning process should be an ongoing matter from the previous year. He asked if NT had put something in place or had any engagements with these departments to try and address these challenges, and commented that NT should be following up to ensure that the problem was not repeated.  Further, Treasury should follow these specific people to ensure that this does not happen again and again. He had serious concerns with comments on the Department of Health, because despite the high unemployment and the dti allocations and intentions to create jobs, South Africa was importing condoms creating a local industry and jobs to produce its own. He was told that industries had been identified who could assist but nothing was happening. Many of the departments had spoken about compensation of employees and vacancies, and the Minister of Finance had said that compensation would be an area of cost cutting. Plans needed to be amended accordingly, because these posts had been budgeted for yet may not be filled, and the two figures had to be aligned. There was also seemingly a problem of capacity if the departments were not performing and delivering services. In the previous week the Acting National Commissioner of SAPS had said that there were interventions, that positions were filled, and generally gave the impression of improvements, which he hoped would materialise. He questioned the interplay between the lack of capacity and restrictions on compensation of employees, and how this must be dealt with in the plans, to avoid a tag of underspending.

He noted that page 13 of the Report dealt with constituency allowances for Parliament between April and December, but with a nil spend. He knew it was being abused but did not know what oversight there was over constituency offices; nobody was checking the thousands of constituency offices and staff all over the country. Perhaps this Committee should go and check offices, furniture and staff, where spending was on the 70% mark, but where were the offices? He asked if there should not be oversight when the money was allocated. He suspected that NT was simply going to respond that this was not within its mandate, but NT did deal with finances. There was abuse on travel allowances; he was aware of people asking for receipts from petrol stations in order to claim even though they were not making the journeys, and this was taxpayers' money.

Mr Shaik Emam felt that dti had been allocated the funding yet there was still unemployment and people should be brought together to create industries. In relation to the DoH he heard repeatedly that one challenge was in attracting general practitioners, and he admitted that there were not enough locally, but nothing was happening.  The Department of International Relations and the SADC members had decided that South Africa would share its resources and expertise with the region. There are hundreds of GPs in Mauritius, who are willing to come, but this was not happening, and he did not know what was stopping the programme getting off the ground. The NHI was a brilliant idea, although there may be weaknesses, but everyone should put their heads together and support the Minister.

Ms Louw reiterated that when a presentation was received so late, Members had enormous work to do to cross-check and cross-reference, with large amounts involved. If this happened again, NT should bear the costs of a cancelled meeting. Members were all concerned to see underspending on the ground in their constituencies. She noted that questions would be asked but NT may not have the mandate to answer all She would thus like to see longer taken by Members to consider the Report, and departments being brought in. She was concerned at the delays that this process, however, might cause and commented that the problem may well continue to progress in the meantime. In relation to Slide 12, the increase in transfers to public corporations was primarily for the PRASA for rolling stock and other capital works, but she asked what amounts were transferred, because there were issues with the rolling stock. She thought DoE had to be brought before the Committee to discuss slow spending, apparently through lack of planning. She asked what were the issues causing Departments not to spend money at their disposal. If government departments could not plan, ran fly-by-night programmes and could not spend properly, this was quite wrong, especially when people on the ground lacked essential services.

She asked for a list of the departments guilty of fiscal dumping. In relation to slide 20 and the inability of local suppliers to produce required condom volumes, she asked whether DoH had done any risk assessment, before putting out coloured or flavoured condoms, to see whether local markets could produce, because she was very worried that there would be no access to them at all. In fact, she wanted to know whether, in all areas that showed underspending, proper and scientifically-based market research had been done.  She wanted the list of five provinces who were underspending on the education and the maths and science technology grants, and said it would be interesting to compare these Provinces’ matric results.

Dr Figg thanked NT for the tool given to Members to engage departments and he urged that the Committee Members really should use this tool. He suggested that instead of the Committee continuing to hold regular meetings, its time would be well spent asking the departments to explain this information, and why people were suffering through allocated money not being spent, particularly in hospitals, where people were dying because of the poor state of the hospital. He described the education system as “ridiculous”, looking at what is being given to the people for the money available. The saddest thing was that those not doing the work in the departments would get state pensions, and he was appealing for concrete action by the Committee. He asked how spending growth of 10% compared to growth of revenue, pointing out that if they were not similar, then the debt gap would widen at an unaffordable rate. He said that if departments were being allowed to do virements, they would continue to do this every year. Perhaps a deadline should be set, after which no virements would be considered. If the law did not prescribe a deadline, then perhaps it should be looked into.

NT had stated that Treasury itself was on track with transfers, but the municipalities said that they waited for them until the new financial year, and thus he asked if the different financial year ends caused problems in the space. The problems with the Urban Development and Infrastructure spending of only 49.2% spend was highlighted but Members knew of the problems and service delivery protests were becoming nearly a daily occurrence. He was interested to see that unspent money must be repaid to the NRF, and he accepted that officials were responsible for delays, but it could mean that communities suffered and were doubly-disadvantaged. He understood NT's motives but felt strongly that this should not happen. He did not agree with concerns about limitations on compensation of employees, because that money had been budgeted for and someone was failing, causing problems of capacity. He noted NT's view that overspending was technically unlawful, but said that if this was so, nobody was being taken to task. In relation to slide 18, he agreed that there was a flurry of activity and financial activity in Q4, and not all of this could have been planned. On slide 19, he disagreed with NT about the slow spending being caused by delays in invoicing, because if the problem was limited to invoices, the rest of the work must have been done and money due. If it did work as NT suggested then there was clearly a mismatch with overspend in one year and underspend in others. In relation to health, he was horrified to see the lack of spending and said that those in charge must be taken to task or another plan found to make sure spending happened. He understood the reasons for government getting those condoms, but it must be carefully considered whether the extra expense was justified, and whether the primary rationale of protection was met. He did not think that people were not using condoms merely because of the lack of colour and flavour. The 9.9% spend in this area is shocking and it cannot be left to the Minister of Health to control HIV on his own. He was therefore appealing for an intervention. On slide 22, he asked why the R5 billion to Eskom was not spent.

Ms Shope Sithole said she was worried that the Committee was dealing with issues in a constrained fiscal environment. Government had to ensure that the South African economy grows. NT and the Committee have that responsibility and it needs to be done. The Committee and Treasury need to make sure that dti's incentives and work is unpacked, and she fully agreed that it was trying to do too much, with its size hindering its effectiveness. There were many programmes in dti which would work better if placed in the DSBD or EDD. Whenever an incentive is given to the private sector, government must get benefits from that, but it must also follow up to see whether it is getting value for money. Members must look at every programme in dti and determine how much it is bring to the growth of the economy. Government cannot say we will depend on borrowing, because of the risks of junk status. The Committee and NT must monitor this. She was concerned about money being transferred to the provinces, and asked, as she always did, what NT was doing to support provincial Treasury. She had been the Chairperson of the Finance Committee in the Limpopo Provincial Legislature and was told by the Provincial Treasury that it communicated with NT on a monthly basis. She was still “heartsore” that an entire province could be brought to a standstill, because people looted the funds. Where was NT while this was happening and what had NT done with the information received from the Province? She encouraged that NT should also look further down, at the local sphere. She saw a lot of grant transfers, but wondered if NT would oversee the spending in municipalities, and if there was any method to do that? Municipal personnel can be called irresponsible, but people were hired without the right educational background to run the municipalities properly. There is a section in the Municipal Finance Management Act (MFMA) which required other spheres to assist municipalities. Chapter 3 of the Constitution which requires all spheres of government to work in a manner which does not divide the Republic. She had the impression from the Auditor-General South Africa (AGSA) that COGTA would help municipalities, but was not sure if the provincial departments were taking this seriously. The got from documents from the Auditor General was that the National COGTA helps municipalities, but she was not sure if the provincial COGTAs take that as seriously. The Constitution placed responsibility of looking after the state assets with NT and whatever departments were doing, she would be looking to NT for answers.

Ms Shope-Sithole continued that the State Owned Enterprises (SOEs) were lucky, because the Committee always called the main departments to account, although they – particularly the dti – were not spending the money. NT had to find a way of getting all the SOE information before it; she was not sure how closely they were held accountable.  She essentially wanted the Committee to be able to follow every rand, from the day of its appropriation to the day of its final spending and wanted to have the SOEs appear before this Committee. Growth of the economy was fundamental to NT and this Committee.  was for the Committee to follow the Rand from the day of appropriation to where it was finally spent. She wanted the SOEs before the Committee. Growth of the economy is key to Treasury and the Committee, and it cannot be that money is transferred to provinces, municipalities or SOEs, without being monitored. Finally, she thought it interesting that NT was even able to monitor and question pending patterns with the Jobs Fund.

Ms D Senokoanyane (ANC) said her first point was the underspending within the SAPS, where there are more than 9 000 vacant posts, and she enquired what percentage this represented. She asked for further information on the delays in the vetting process for IPID, coupled with the freezing of vacant posts. She noted the numerous “delays” cited, but wanted to know why these happened when people were supposed to be managing the departments, and it pointed to serious operational problems.  She wanted to know what the difference between slow spending and underspending. She saw major capacity constraints in the DoH, and asked what this meant for its future, and wanted to know whether the constraints were mainly at operational or senior management level. She knew that NPOs on the ground were not getting their funding from the DoH. She thought that the spending of only 5.8% due to “delays” in relation to substance abuse was unacceptable, if not criminal.

Ms M Manana (ANC) thanked Mr Mogajane for the presentation. and accepted his apology on the late documents but warned that this should b eh last time it happened. In relation to the virements, she suggested that the departments should be named and shamed, and a report was needed for those departments that had been guilty of this over the last three years, because it was simply fiscal dumping that the Committee would need to discuss seriously. In relation to telecommunication and postal services, and the spending on broadband at 5.5%, this had been raised by the previous Minister of Communications. The slow spending on disaster relief is very worrying and it needs to be addressed as soon as possible. There were concerns about possible overspend in the Civilian Secretariat on Police and she suggested that it should appear before the Committee to explain how it would deal with the matter. She was concerned with the underspending at the University of Mpumalanga, an important institution for the people of the province. She noted the comment about some NPOs not getting their transfers on time but said that some were not genuine enough to qualify. She would like to hear an explanation of the issues from the DoH and the DSD. She said that anyone who tried to claim money fraudulently must be named and shamed, in order to emphasise that Members were concerned to set and lead by ethical examples.

The Acting Chairperson said that NT might not be able to answer directly on the Parliamentary constituency funding, because that was an internal Parliamentary issue and he knew that there was a committee that debated and appropriated funding to Parliament, so this was probably something that warranted being dealt with internally first. He suggested that NT could perhaps sit with Parliament to engage on those issues. Secondly he said that the Committee should alert NT when it was having engagements so it could hear the responses and be able to highlight any contradictions immediately. He suggested that NT also should review the incentives with dti, DSBD and EDD. Members had had concerns because although government, through the budget process, had incentives and allowances, it did not seem to be able to put its finger on the outcomes. Incentives to the private sector should result in increased manufacturing and competitiveness, the creation of decent jobs and economic growth, and if these were not happening, then the incentives must be rethought. There had been some good results in the automotive industry, but the Jobs Fund and tax holidays must be considered.
Health issues response
Dr Mark Blecher, Chief Director: Health and Social Development, National Treasury, said that the DoH had taken over responsibility for many of its own tenders, especially medicines and had built up some expertise but it was possible that it might be focusing too much on the lowest price and not looking sufficiently to the risk management. Sometimes it can be useful to spread the tender over a few suppliers, so that if one supplier fails others can step in. This applied to the medicines  in the last year, and although there was good capacity in procurement perhaps more attention had to be paid to risk management. In the depreciation of the rand by about 30% in the last year, the manufacturing price rose, and companies with high input costs did not want to supply; there had been two increases in condom prices since the depreciation, but still there were problems. Part of the problem related to enforcement of contracts; in the DoH many of the end of year virements were from the condom funds, with up to R100 million underspent on condoms, but moved elsewhere. The Committee should engage with the DoH, perhaps initially in written questions, because it was not the first year in which there was a problem of supply. He agreed that this could be a viable domestic industry and jobs could be created. Thinking about procurement as a way of stimulating an industry

In addition to the low spending in the Substance Abuse grant, there was a problem with the way that the DSD was managing the grant. Most Departments pay on an agreed date. However, DSD was not very experienced in managing conditional grants and was trying to balance cash flows against payments. This grant is to cater for four substance abuse centres and the North West has spent about R14 million on its substance abuse centre, but DSD has only transferred about R2 million. That is not the way a Schedule 5 conditional grant is supposed to work. NT has raised this with DSD . There has been quite a lot of progress on the North West Centre and Eastern Cape Centres, although there have been delays with the Free State and Northern Cape. The Committee might wish to engage with the DSD. Low transfers to NPOs was an ongoing problem in the DSD, and the provincial departments of Social Development were also dumping funds; the NPOs were actually getting their money late.  The NPOs helping the AIDS had actually had to enter into a partnership with SA National Aids Council to try to move forward. In generally, the whole approach by DSD had to change. NT and DSD jointly had produced a document that he could send to the Committee.

In relation to indirect NHI grant, he noted that there was slow spending both on the revitalisation component and the NHI component, although both had improved from two years ago. GP contracting had improved from 150 in 2015/16 to about 310 this year, and it was hoped that money would be spent by the end of the year.  There were questions about the breadth of projects being undertaken by the DoH, ranging from nursing colleges to hospitals, some of which were done on behalf of the provinces, and about the unit costs, both spending and value for money achieved.

JCPS Cluster
Ms Mpumi Radebe, Director, National Treasury, noted that the JCPS cluster is labour intensive and there will be fluctuations through recruitment drives, while there are still people leaving, for reasons including natural attrition. In some cases the high number of vacant posts does not necessarily have a direct impact on spending - for example, SAPS announced promotions and grade progression within the SAPS,using money for vacant posts for this. The 2015/16 public sector wage agreement led to many departments deliberately not wanting to fill vacant posts, in order to see the impact of the wage agreement before determining how many posts they could afford to fill. This was part of the reason for the non-filing of posts in IPID, coupled with delays in vetting. If departments had not frozen some posts, there would have been overspending. Vetting related to investigators who need to be cleared before investigating the SAPS, but in an investigation-led Department such delays would have a direct impact on operations. That was one of the main reasons why IPID was underspending, and why it developed capacity in house so that it did not have to rely on SSA. NT had indeed flagged the likely overspending by the Civilian Secretariat of Police. In this case, the Civilian Secretariat had to run an unplanned programme during the xenophobic attacks, early in the 2015 financial year, and that had driven its spending,with the result that it would now have to find other ways to cut costs. It would, of course, still have to pay salaries, but could make cuts in matters within its control, like travel and communications. NT felt these were implemented too late and hence there was a prediction of overspending, although it would have been worse had NT not engaged with the Civilian Secretariat to reduce that spending.

Administration portfolios
Mr Japie Jacobs, Director: Administration Services, National Treasury, spoke to the payment of suppliers within 30 days and said that the Office of the Chief Procurement Officer had drafted a document which was being discussed internally. If a service provider was not receiving the money due, that supplier would be able to contact NT on a hotline for an intervention. This was a matter of putting a process in place to ensure that the suppliers received their money within 30 days. Underspending and fiscal dumping in Q4 did remain a concern for NT. It was not always that easy to identify who was guilty of fiscal dumping, but NT did raise all the questions around big payments going through in Q4, following up on this with departments. In relation to the Department of Communications, he noted that it might be that a department, although it should have spent 75% over three quarters, might only have spent 65%, which meant that it would still be possible for it to catch up – this then was regarded as slow spending rather than underspending. If, however, a project had been cancelled, that would be regarded as underspending by the time Q4 had ended. Whether or not spending was in line with predetermined outcomes was more the terrain of the Department of Planning, Monitoring and Evaluation (DPME). The budget documents contained a set of criteria for each vote and the objectives that departments intended to reach and spending outside of those would be regarded as unauthorised expenditure.

Mr Ricardo Andrews, Director: Economic Services, National Treasury, said once the incentive review was concluded by DPME, it will be shared with the Committee. He noted that in regard to the special appropriation for Eskom, the delay was caused by the DoE having to confirm that it met the appropriation conditions, but once this was confirmed the transfer took place.

Mr Mogajane wanted to add a comment on the incentive review. NT fully agreed with what the incentives are to provide, and NT was committed to conducting the reviews with the DPME although DSBD was not part of the mix. Terms of reference were drafted and the three relevant Departments need to be brought together. The scope would include the whole spectrum of incentives including the Jobs Fund and tax holidays.

In relation to ethical leadership and the matters raised by Ms Manana and Mr Shaik Emam, NT had tread carefully in the way that it engaged with legislatures once transfers had been made, for fear that it might be seen to be overstepping the limits imposed by the separation of powers. NT understood that it had a role when it came to public finances and Mr Mogajane had personally had engagements with the CFO in Parliament and the Secretary of Parliament on budgets. The latest engagement was one where all the legislatures had gathered to hear about issues around cost containment from a Treasury perspective. A meeting between the Minister and the Speaker still needs to be set up. It is always in a constrained fiscal space that the sharing of experiences starts. As that space develops, NT will be able to raise the heavy issues around spending and the efficiency of spending. The window of engagement has been opened, but Treasury did not want to appear to be dictating to Parliament. 

Mr Mogajane confirmed that when he had spoken of the University of Mpumalanga, it was just an example, although he confirmed that in fact, it needs more money. Overall, that programme in DHET saw slow spending.

In relation to the question on slow spending now and transfers in Q4, he explained that in Q4, payments will still be made, which was the only time when it would be possible to see if there was still over- or under-spending. The findings would be confirmed by the Auditor-General. Where there are

NT was trying to ensure that the SOEs were firmly on the agenda of NT, across the board – its Intergovernmental Relations division would deal with and support provinces and municipalities. This same division would meet provincial treasuries on a monthly basis, in the Technical Committee of Finance (TCF). This was comprised of all nine heads of provincial treasuries, and NT. TCF engages on inter-governmental matters. The statutory bodies which give expression to the TCF are the Budget Forum and the Budget Council. Those two fora are established by the Inter-Governmental Fiscal Relations Act and the TCF supports them. It meets on an ongoing basis, not only for information sharing, but peer review and implementation of things which work in other provinces. It works in some cases, but it all depends on the provincial efficiencies. Parliament has dealt with section 100 interventions in the past and it had been NT who raised the issues about Limpopo to the Cabinet, but long before that December, NT had been sending out warnings to the departments, and it was also raised in the TCF meetings, so the red flags were already apparent. Since then, further systems had been put in place. He would not go into full detail on the reasons why this had happened.

 

Dr Madlopha asked for an indication of what had happened there.

Mr Mogajane explained that it became apparent that Limpopo was not going to be able to pay salaries in that November, because it was running huge overdrafts ,but now the new systems picked up if this was happening in other provinces. The inter-governmental fiscal system had evolved over time. South Africa had thought, some years back, that the PFMA was the best piece of legislation, but it was implemented in phases whilst the building of the state structures was under way, and then when the MFMA was introduced there was a phasing in process in terms of which some municipalities had to be designated to report directly to NT and others to provincial treasuries. The implementation of the PFMA, from the 1990s, had not been easy, and the system was not very efficient. He was comfortable that NT’s oversight role over provinces and municipalities was starting to bear fruit. In the inter-governmental relations division, a Municipal Budget Analysis Unit had been set up, capacitated to monitor municipalities, so NT was slowly getting to grips with the spending in municipalities, and soon would be able to report on them as fully as with other departments, which was something that he had not anticipated five years ago.

The DPME was still a relatively new department and was still finding its feet. The synergy between NT and DPME still needed to be worked out; he thought it was mid-way to optimal. DPME needs to understand NT’s perspective and role, because some of the questions today ought to be directed at DPME. Treasury should be giving the money, checking for spending and DPME should be responding to the question on performance. He noted the suggestion that NT and the departments should be brought before the Committee, but suggested that this should also include DPME, so that NT could account for the spending and DPME for the outcomes. It is not easy for DPME to get to this level and Treasury is engaging with it to help it to build. In future,  DPME will take the performance plans and question Departments about how well they had performed against those plans. National planning needs to be strengthened, and help to synergise the MTSF and NDP, from which budget priorities are derived. One  criticism has been that NT is on its own tangent, not funding priorities of the NDP or MTSF. In Chapter 5 of the Budget Review, Treasury tried to link money to priorities in the NDP and MTSF. In the absence of guidance from DPME and the National Planning Commission it was difficult. Priorities will come from the NDP, Nine Point Plan and Election Manifesto of the ruling party. It would be hard to fund all of them so it must focus on the most critical. South Africa is a young democracy and the process of building a state is difficult and long.

He explained the difference between expenditure growth and revenue collection growth. Expenditure targets will be fixed and voted, and can be measured quarterly. Revenue estimates are influenced by economic growth: SARS announced that it had collected R154 million more than targeted, subject to auditing and refunds. However, South Africa goes out and gets debt financing; one good example was that a bond issued in the previous week was oversubscribed by almost R250 million, and when there was uncertainty in December 2015, the interest on bonds increased by almost 2% making it more expensive to borrow. The Minister of Finance has been saying for the past two months that  junk status for South Africa will affect the appraisal of its bonds, so any mistakes may influence that. If revenue increases, then the deficit goes down.

He said that the amount of the transfer to PRASA was R2.56 billion. Members were correct that the DOE should account for slow spending with the solar water geysers. Eskom was to roll this out, but Eskom was not spending the R1.2 billion. NT had been pressurising the Department of Energy to deliver in terms of the plan that indicated that Eskom would roll this out, and to pay back the money if it did not. When the delivery model changed the Department now wants delivery capacity.

NT will ensure that a list of Departments suspected of fiscal dumping will be provided. There are in fact six provinces Limpopo, Eastern Cape, Northern Cape, Free State and Kwa-Zulu Natal where there is slow spending on the maths, science and technology grant. This would be raised in the TCF and all the colleagues would then engage on why the slow spending has occurred.

In relation to announcements by the Minister of Finance around compensation of employees, he noted that in 2015/16 NT was concerned about the underspending due to vacancies. As part of the preparation for 2016/17, NT started raising issues about money lying in personnel budgets not being spent. Low economic growth led to the constrained fiscal environment, which meant Treasury had to cut budgets by R10 to R15 billion for 2017/18 and 2019/20, particularly cutting personnel budgets, coincidentally by the same numbers. Government needed money to ensure acceptable deficit levels, to demonstrate to South Africans, ratings agencies and to Parliament that government is able to live within its means. Cutting R25 billion over two years effectively means that personnel numbers will be cut and government will not employ. The distribution of the R25 billion saving across government should be provided to the Committee, to see each Department's contribution. NT manages the PERSAL system and locking this means that nobody can be employed, and that lock would be implemented from October 2016. Provinces had not been hiring for a while. At the TCF, Free State, Mpumalanga and Western Cape had shared their experience in locking Persal long ago. There still needs to be a system to ensure that critical, non-Occupation Specific Dispensation positions are filled. Key service positions such as teachers, doctors and police will not be blocked. ~

He agreed with comments on the drought and said the implementation plan is critical, which must be demanded from DWS.

He agreed that a transfer does not require any planning, like NT does with the SSA, SARS and now the BRICS bank. NT's officials at the meeting would relay the Members' concerns back. He reiterated that NT personnel had to be “more inquisitive than usual, within the law and without arrogance, to get the right information to bring to the Committee.

Ms Shope Sithole wanted to plead with NT to assist structures like the Public Accounts committees in municipalities. She had interacted with a number in her constituency and they needed assistance, often simply in order to be taken seriously by the Councils. She appreciated NT noting that South Africa is a developing country and should not be compared with established democracies. However, it must copy the way they protected their industries, because that is how they developed to such levels of industrialisation.

Mr Shaik Emam agreed that Municipal Public Accounts Committees get no respect from municipal Councils who do not listen to them or report back and he had raised this point several times. He wondered if the backpay affecting filling of vacancies might not become an annual event, and he said that every year there would be negotiations, delaying tactics and eventually back pay. 

Mr Mogajane said it will not be on-going because government has three-year wage deals, giving it enough time to plan properly for these carry through costs. He thought the comment on the MPAC might need to be brought to the attention of the Budget Forum.

The Chairperson said the Committee realised that it requires a lot more than the three hours of the present meeting were required, but the Parliamentary Programme constrained the Committee.

Other business: Minutes of 5 April 2016
When going through the minutes, Members noted that a Member who had been ill for some time had tendered an apology, and asked if that was correct. They decided, after a discussion, that nothing needed to be added to substantiate the reasons.

Dr Figg said that on page 3 and the summary of decisions, it was noted that there was a presentation by the Parliamentary Budget Office. He wanted the decisions made on this to be reflected. 

Mr Darrin Arends, Committee Secretary, said no other decisions were picked up aside from the minutes, but if Dr Figg has any other specific decisions these should be indicated.

Dr Figg said he would do so in writing.

The Chairperson asked any other Members who had similar decisions to record to indicate these to the secretariat. He asked if Members wanted to adopt the minutes now.

Mr Arends suggested that if anything had been omitted then it would seem prudent to  postpone adoption of minutes until those inputs were received. It would be difficult to insert decisions into minutes.

Dr Figg noted that there were no other decisions and was satisfied on that.

The Chairperson said there may have been issues which the Parliamentary Budget Office was instructed to investigate further. If so, then they should be reflected in the minutes.
They would be added and the Committee would be able to see what to follow up.

The meeting was adjourned.