Assessment of Conditional Grants: Departments of Education, Housing, Water Affairs & Forestry, Social Development, Public Works

NCOP Finance

11 March 2003
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Meeting report

SELECT COMMITTEE ON FINANCE HEARINGS ON THE DIVISION OF REVENUE BILL

FINANCE SELECT COMMITTEE
12 March 2003
ASSESSMENT OF CONDITIONAL GRANTS: DEPARTMENTS OF EDUCATION, HOUSING, WATER AFFAIRS & FORESTRY, SOCIAL DEVELOPMENT, PUBLIC WORKS

Chairperson: Ms Q Mahlangu

Relevant Documents
Department of Education Grants - PowerPoint presentation
Department of Housing PowerPoint presentation
Department of Water Affairs & Forestry Conditional Grants - PowerPoint presentation
Department of Social Development PowerPoint presentation
Department of Public Works PowerPoint presentation
Department of Education: Report on Conditional and Poverty Alleviation Grants
Report on Utilisation and Impact of Conditional Grants: Department of Education for 2001/2
Department of Education Conditional Grant: Life Skills: HIV/AIDS

SUMMARY
Five departments - Education, Housing, Water and Forestry, Social Development, Public Works - were asked to appear before the Committee to assess the reforms taken in the allocation of conditional grants. They were questioned about:
- the formula and criteria used for allocating each grant.
- trends in allocations, transfers and actual expenditure of the conditional grants
- an assessment on the Department's monitoring capacity and past performance
- why this grant should continue to be a conditional grant, and not be part of the equitable share or an unconditional grant.

The Departments were keen for the conditional grant to continue

MINUTES
Department of Education's Conditional Grants
The Department of Education (DoE) was represented by the Minister, Professor Kader Asmal, Director-General, Mr Thami Mseleku, and Director: Development Support, Ms Lucky Moeketsu.

The conditional grants include:
- Financial Management and Quality Enhancement in School Education
- Early Childhood Development
- HIV/AIDS
- Thuba Makote (Poverty relief, infrastructure investment and job summit)
- Ikhwelo (Poverty relief, infrastructure investment and job summit)

The Minister explained that the DoE was functioning in the spirit of co-operative governance driven from the national level and that this was key to delivery. This was well understood by the provinces and they held meetings with the national department every six weeks. He reported that Treasury accepts that Conditional Grants are the way to go in certain areas. Conditional grants play a role where there is a gap in expenditure allocations. The Minister is to take personal responsibility for these funds within these important niche areas. He reiterated the slogan of the Minister of Finance: "No delivery without accountability, and no accountability without oversight". This slogan was adopted by the DoE and the Minister felt that it should be applicable to all.

In summary, the Minister stated that strong political intervention is needed in determining policy priorities. There exists a spirit of co-operative governance driven from national level, which is bound, by the spirit of 'Batho Pele' and oversight. The way of providing some funds through conditional grants should continue.

[The Minister then asked to be excused as he had to attend a Cabinet committee meeting.]

Mr Mseleku, the Director-General, continued with the presentation explaining the purpose of the grants. The target being primary and secondary schools and Grade R. Monitoring, reporting and compliance issues are important for maintaining these grants. All grants have the same system of requirements: approval of business plans, monthly and annual reporting, quarterly reviews, on-site monitoring. It is also a requirement to report to the Heads of Education Departments Committee (HEDCOM) and the Council of Education Ministers (CEM).

The Financial Management and Quality Enhancement Initiative (FMQEE) Conditional Grant is allocated to the provinces according to the equitable share formula. The formula recognizes that provinces have different economic profiles, demographic variations and significant variations in socio-economic circumstances.

The education component of the equitable share, which is the formula used for allocating the grant to the various provinces, targets primary and secondary schooling, which accounts for 80% of provincial spending. Both the school-age population (ages 6 to 7) and enrolment numbers are used to reflect the demand for education services. For the purposes of this HIV/AIDS Grant, certain age groups (12 to 15-year olds, in grades 7 to 9) were identified as the primary intervention group with which to start HIV/AIDS Sexuality Education.

The purpose of the Early Childhood Development (ECD) Conditional Grant is to extend this service to the poor through the provision of a quality Reception Year (Grade R) programme at 4,500 selected community-based sites.

Thuba Makote is a project whereby the provincial Departments of Education with the assistance of donors is addressing the backlogs and the poor condition of school infrastructure. This has concentrated on building conventional schools and classrooms.

Mr Mseleku motivated for the continuation of grants and explained that it was the government's duty to assist provinces where there are weaknesses such as the Eastern Cape. Grade R that is supposed to be compulsory at all primary schools, is still largely part of private entities. Thus, Conditional Grants are critical both for poverty alleviation and education. (See documents).

Discussion
The Chair asked what the reasons were for the lack of expenditure in the provinces.

Mr Ralane (ANC) asked if the lack of expenditure in the provinces was a problem of financial management.

Ms Makotoko (SALGA) commented that the performance of conditional grants shows patterns of under-spending. The motivation for the continuation of grants is noted, but what if under-spending continues.

Mr Durr (ACDP) said that it was significant that the minister was taking personal responsibility for the funds and asked if this was not an invasion of the responsibility of provinces. He asked if the minister's recent comments on the introduction of firearms in schools [for target shooting] were a joke, because there were too many firearms around anyway. Further, is there a significant amount to be spent on capital projects such as buildings.

Mr Mseleku explained that National Treasury publishes the figures on under-expenditure. It has happened that when these figures are presented to the provinces, they are contested. For example, Treasury would have a figure of 0% spending, while provinces would present 76% spending. Expenditure accelerates once procurement has occurred. Any new system takes some time to consolidate as it matures. However, problems of under-spending also exist as a result of lack of capacity such as in the Eastern Cape. The Northern Cape has different problems, which will be investigated.

With regard to the Minister taking personal responsibility, it was reiterated that intervention was based on the understanding of co-operative governance with provinces.

Spending on infrastructure is geared to ensure that schools have place for early childhood development, that is, Grade R. Thus the ECD Grant specifically deals with Grade R.

With regard to the introduction of firearms in schools, Mr Mseleku argued that before 1994 the South African Defence Force (SADF) had extended its programme of target training and shooting as a sport in privileged white schools. These rifles were now in the hands of the new South African National Defence Force (SANDF) and it was agreed that this Olympic sport needs to be equitably distributed. These firearms are kept under strict regulations.

Finally, Ms Moeketsu in her motivation for the continuation of ECD Grants, explained that in the first year there is usually no infrastructure in terms of systems. As the levels keep on improving, the system could consolidate.

Department of Housing's Conditional Grants
The Department of Housing (DoH) was represented by Director-General, Ms Mpumi Nxumalo, Chief Financial Officer, Mr Mzi Dlabantu, and spokesperson, Mr Mandla Mathebula.

Ms Nxumalo stated that housing administers two conditional grants: Housing Subsidy Grant and the Human Settlement Redevelopment Grant.

The Housing Subsidy Grant is to finance housing subsidies under the national housing programme. The Human Settlement Redevelopment Grant is to fund projects aimed at improving the quality of the urban environment by addressing the legacy of dysfunctional settlements (See documents).

Discussion
Mr Durr asked about the progress regarding a case of corruption and alleged fraud involving Khosa and Pillay of KwaZulu-Natal. However, it was noted that the case was sub judice. An explanation about the department's dissatisfaction with the contribution of the private sector was sought. Further, he was concerned about the focus of housing, in that cold clusters were built with no sense of community. He felt that there needed to be room for greater planning for the establishment of communities. The impression was that the role of utility companies was being ignored by the state.

Ms Botha (DP) sought more detail about urban bias.

Ms Makotoko's concern was about the need to integrate subsidies at local government level as well.

Mr Taabe (ANC) commented that 39% of the grants had been allocated to female-headed households, was there any process for accelerating this. He also expressed concern about whether R10 million was sufficient to deal with the lack of capacity of municipalities.

Ms Nxumalo reported that she had approached the Presidency to investigate corruption. Since then, a task team has been operating for one and a half years and boxes of information have been handed to the Director of Prosecutions. A number of people have already been arrested and prosecuted. Some people have already been jailed, while others are awaiting trial after being disciplined and eventually fired. The situation is completely under control.

Participation by the private sector is based on a record of understanding. In housing, the government delivers in partnership with business. Private construction firms actually build the houses, and financial institutions fund the houses. Despite agreements, the private sector has not met the requirements.

The need to integrate subsidies at local government level has increasingly been addressed. Integrated Development Plans (IDPs) are seen as a mechanism to channel the development of subsidized housing. Here is an important role for integrated delivery.

On the question of urban bias, Ms Nxumalo commented that the previous formula was non-biased, and largely based on population. Since then, there had been a major policy shift to increase housing in urban areas because of more pressures due to rapid urbanization and homelessness. However, this is not done to the neglect, or at the expense of the rural areas.

The Department continues to increase the allocation of grants to female-headed households. An activist group called Women in Housing was started in 1995.

Mr Kolweni (ANC) asked how oversight over the entire process could be exercised. He was aware of the Scorpions and so forth, but that they were only effective in the case of whistle blowing.

The Chair commented that according to press and Treasury reports, Gauteng had spent very little on housing. In reply to her asking if the department had any audit fees owing to the Auditor General, it was noted that the department did not have any debt problems.

Ms Nxumalo replied that the Gauteng Premier needed to intervene strongly about the spending on housing. Gauteng has a very strong environmental department that is able to block any development. The strong competing technical capacity in Gauteng may be its downfall. Gauteng draws migrant workers who are reluctant to invest there. They would rather invest in the places from where they come.

On whistle blowing, she pointed out that there is a hotline open to all members of the public.

Dlabantu remarked that the structure of the conditional grant does not easily lend itself to deal with emergencies, and this was problematic. He proposed that a top slice of the grant be allocated for emergencies.

Ms Nxumalo explained that the problem was with the rigidity of the grant's conditions. There needed to be a flexible top slice for emergencies.

It was mentioned that Mr Khan from the National Treasury would interact with Housing on this issue.

Finally, the Chair stated that in the interest of co-operative governance, they all needed to identify bottlenecks and try to solve them.

Water Affairs & Forestry's Conditional Grants
The Department of Water Affairs & Forestry (DWAF) was represented by Director-General, Mr Mike Muller, and Chief Financial Officer, Mr John Mabala.

Mr Muller stated that the current grant has flexibility to enable one to respond to emergencies such as cholera. Free basic water is only possible in poorer municipalities if they make use of their equitable share as own revenue is insufficient. The department will monitor the implementation of free basic water. The funds were increasing every year which also reflects the scale of poverty. Gauteng and the Western Cape showed high level of services compared to rural provinces.

There is a set of conditions before funds are allocated to municipalities, that is, business plans, agreement on reporting, and service provision. He recommended that the grant continue because it helps build local government capacity and requires a stable funding environment.

With regard to the operation of water supply schemes, it was suggested that the problem of water supply was not technical, but organisational. Community disagreements exist regarding payment. (See documents for details).

Discussion
Mr Ralane referred to Schedule 7A of the Division of Revenue Bill and asked why there is a decrease in the allocation for the year 2004/5. Further, he commented that the formula for calculating the equitable share was unfair and cited the example of the Northern Cape being a dry area, but receiving comparatively very little.

Mr Kolweni asked whether the department's deadline for water services was not over-ambitious, as there seem to be no hope of getting water to far-reaching areas.

Ms Shope-Sithole (ANC) said that her experience had not been very good. In her community there had been conflict regarding access to water and confusion around issues of payment. She asked what the powers and functions of municipalities were in this regard.

The Chair commented that the department had received an adverse response from the Auditor General for the year 2002/3 regarding its financial accountability. She asked if the DWAF owed the Auditor General any fees.

Firstly, Mr Muller replied that the formula was very fair and that the funds were targeted for those who need it most. The Northern Cape may have less water, but it uses underground water, which is easier and cheaper to maintain. In KwaZulu-Natal with its high and low lying areas, the water runs into streams and has to be piped which is more difficult and expensive.

Regarding the deadline that had been set, it may be that the government was trying to do too much, and Treasury had already been spoken to.

In response to Ms Shope-Sithole, he assured her that money for water provision was increasing. Also, it is important that conflict be solved at local level. The department was working with the South African Local Government Association (SALGA) and the Department of Provincial and Local Government (DPLG) to put together a programme of capacity building for local government.

He emphasized that there was no misspending, no failure to account for money spent and no question were asked about audit reports received from DWAF.

Mr Mabala stated categorically that DWAF does not owe anybody any money, and that they do pay their creditors.

Mr Ralane asked the Mr Mabala to go through the records and look at the accounts of Buffalo City as they have reported to the committee that they are owed money by DWAF.

Mr Muller stated that there might be other issues as DWAF has an office in Buffalo City. It may be a problem of transfers and functions or something to that effect. It is certainly not the intention to owe money to anybody, but to keep a clean record.

Department of Social Development's Conditional Grants
The Department of Social Development was represented by Director-General, Mr Vusi Madonsela, Deputy Director-General: Integrated Development, Ms Thembi Nwedautsou, Director: Financial Management, Ms Dorothy Snyman, and Director: HIV/AIDS, Dr Maria Mabetoa

Ms Snyman introduced the presentation by stating that the following grants would be managed by the Department in 2003/4 and over the MTEF years: Improvement of Social Security System (ISSS). HIV/AIDS (National Integrated Plan for Children Infected and Affected by HIV/AIDS). Extension of the Child Support Grant and Food Emergency Relief. The ISSS will be phased out in 2002/3.

The purpose of the ISSS is to improve financial management, administration and functioning of the social security system. Outputs are the provision of infrastructure & office automation tools, improved communication network and information service for speedier responses to beneficiaries, and effective management systems. The rationale for the Conditional Grant is that improvement of social security is a national priority. Conditional Grants ensure integration and consistency in planning; and implementation of national programmes and policy priorities, for example, norms & standards. (See documents).

Discussion
Mr Kgwele (ANC) stated that the presentation was clear and it shows that the Department had applied its mind to the programmes to be rolled out. However, questions were raised with regard to the size of the Department and its links with the provincial component. There may be good plans, but does the capacity exist in terms of size of national and provincial directorates?

Mr Ralane questioned under-expenditure in terms of home-based care in KwaZulu-Natal. Further, he wanted to know how much the allocation of food parcels per beneficiary was.

Mr Taabe referred to the presentation's list of challenges facing the Department. What is the nature of the problem with data integrity. What progress has been made regarding the Grant Information System known as SOCPEN. Besides the distribution of food parcels, what other forms has assistance taken? There is evidence that advantage is being taken of the extended child support grant. Has an analysis been done on the nature and extent of this problem? Who should be benefiting from the allocation to needy households?

Ms Botha (DP) commented on the lack of capacity to spend money. She observed that KwaZulu-Natal had spent absolutely nothing. All provinces received the same amount except the Northern Province. She questioned the validity of the figures.

Ms Mtshweni (ANC) asked if the Director General was visiting the provinces and departments.

Mr Kolweni asked if the Department was ready to roll out in terms of capacity.

Mr Sogoni asked what the reasons and specific weaknesses were for the lack of capacity to spend.

Ms Shope-Sithole asked if the presentation correctly reflects the situation on the ground.

Mr Madonsela explained that there were a number of cases of deceased beneficiaries. Legally, social grants could not be part of an estate (inheritance).

With regard to the food relief grant, Ms Nwedautsou explained that resource capacity had not been sufficient when the allocation was made. However, allocations were done quite frequently. Steps are being taken to augment the capacity of the department. The national and provincial government still need to re-configure their figures.

Dr Mabetoa explained that R600 million had been spent on HIV/AIDS. The average amount for food parcels ranges from R 150 to R 300. The size and amount of the food parcel is allocated according to the size of the family. Children who are orphaned are put in a place of care in the community, or with the extended family. Burials are taken care of.

Ms Snyman reiterated that provision was made to assist provinces with capacity.

Department of Public Works's Conditional Grants
The Department of Public Works was represented by Chief Director Mr Bongani More,
Director: Office of the Director-General, Ms Lusanda Mxenge.

The Chair expressed the dissatisfaction of the committee that the Director-General and other senior officials of the department were not present. She stated that with all other departments Directors General and senior officials had been present.

Mr Bongani, Chief Director, apologised on behalf of the Director General and stated that he had wanted to be present, but that he was still new and he had got caught up with other issues as he was still finding his feet.

Mr Ralane (ANC) stated that it would be a futile exercise if the representatives of the department were not able to answer the questions put to them.

After much deliberation, the Chair ruled that the department would go ahead with their presentation. Questions would then be put to the department, and they would need to return the next day, 13 March in order to respond to all questions.

Mr More then summarized the presentation: The budget of the Department of Public Works is designed in such a manner so as to address the objectives of the Community based Public Works Programme. These objectives include the fact that the programme be primarily targeted at job creation and construction of sustainable productive assets within rural poverty pockets, with an additional emphasis on women-headed households. These objectives necessitate that a targeting formula and budgeting allocation exercise be undertaken. (See document).

Discussion
Mr Koornhof (UDM) asked if Public Works owed money to any municipality or audit fees to the Auditor General. Further, on whose inventory will community assets appear and to whom will it ultimately belong.

Mr Ralane asked a question about the division of revenue where a once-off lump sum figure appeared for only one year and which had not been budgeted for.

Mr Taabe stated that women continue to be subcontractors in a male dominated industry. He asked whether there were any programmes for empowerment. Further, he had visited several public works programmes and noted that there was no sense of ownership while millions were invested into projects and grand community centres, which were now being vandalized.

Mr Kolweni stated that in terms of his oversight function he was particularly looking at Integrated Development Plans (IDP), however the involvement of Public Works is not seen at this level. He commented that in his constituency officials from the department were not pulling their weight and were sending junior officials to solve problems instead of seniors.

Ms Shope-Sithole commented that five minutes from her home there was a large building meant for canning, but it had been standing empty since 1999. Several enquiries were made but nobody knew why the building had not been utilised for such a long time. It was being vandalized and is now protected by security guards and has become a white elephant. It is of concern that money is now being paid for security instead of making the building work.

Mr Taabe asked Public Works to make a list of all completed community projects - those in the process of completion, and those handed over to communities.

The Chair ordered the Department of Public Works to return the next day and answer these questions.

Meeting adjourned.

Appendix:
Invitation to Public Hearings on Division of Revenue

The Select Committee on Finance will host public hearings on the Division of Revenue from the Monday, 10 March 2003 to Thursday, 13 March 2003 as it form an important component of intergovernmental transfers, and are vital in ensuring attainment of specific national policy priorities and programmes.

As you would be aware, over the last three years, a number of reforms have been introduced in relation to the administration of conditional grants, with the view of enhancing their effectiveness as means of facilitating improved delivery at sub-national level. Notably, provinces and local government now receive three-year allocations for conditional grants and a framework for each grant setting out the purpose of the grant, measurable objectives, conditions, allocation criteria, past performance, amongst other things.

You are invited to address the committee on all the conditional grants administered by your department via oral submission given that your Department administers a significant proportion of conditional grants, in preparation for the hearings, could you kindly furnish the Committee with the following:

  1. A detailed exposition on the formula and criteria used for allocating each grant for 2002/03, 2004/05 and 2005/06, and the extent to which these comply with section 214 of the Constitution. In particular, how the allocation mechanism take into account each of the factors set out in section 214(2) (a) to (j). Please also furnish all statistical data used for the formula, and indicate the source of all such statistical data. All departments should note that this information is critical for the committee to assess whether your department is in compliance with the criteria outlined in sections 214(2)(a) to (j) of the Constitution, stating which criteria may not be applicable, and for those that are applicable, how the grant gives effect to that criterion.
  2. Data on trends in allocations, transfers and actual expenditure of all your Department's conditional grants. An analysis of the actual allocations by province and municipality, including the per head allocation for that grant (using the population numbers per municipality published in Appendix E7 of the 2003 Division of Revenue Bill, or for provinces, the population data in Annexure E as used for the provincial equitable share formula).
  3. A brief assessment on your Department's monitoring capacity and past performance, for both the current year 2002/03 and the past year (2001/01). Please indicate how your Department monitors compliance every month by provincial and/or local governments as required by the 2002 Division of Revenue Act, including the conditions pertaining to the grant, as set out in the framework for the grant. Please indicate whether your department ensures that it does receive the monthly reports required from receiving departments or municipalities, and if not, what you department is doing to ensure compliance. Where non-compliance occurred in 2001/02, explain steps taken to ensure full compliance in the current financial year (2002/03), and indicate whether there is evidence of improvement. In instances where the Auditor-General has a qualified your audit due to a conditional grant, we would like you to explain the steps your Department is taking to address the A-G's concerns.
  4. Quantitative and qualitative indicators/information on performance of conditional grants administered by your department for the 2001/02 financial year, using the ones set out in the framework for the grant as a point of departure. In particular, a focus on the non-financial performance indicators used by your department.
  5. A motivation for why this grant should continue to be a conditional grant, and not part of the equitable share or an unconditional grant.

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