Gauteng Provincial Treasury on its Quarter 3 & 4 performance

NCOP Finance

11 May 2016
Chairperson: Mr C De Beer (ANC-Northern Cape)
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Meeting Summary

The National Treasury and Gauteng Provincial Treasury briefed the position on the general spending, and the spending of individual provincial departments in Gauteng in the third and fourth quarters of the 2015/16 financial years. It was noted that the Gauteng Provincial Government (GPG) underspent by R2.2 billion although over spending was projected at R317 million in the third quarter. The R2.2 billion underspending was mainly due to the figures for the compensation of employees. Delays in the completion of 18 schools that were supposed to open in January 2016  contributed to underspending by R832 million, as about 2078 educators, deputy principals, heads of departments and other public servants should have been appointed. It also surrendered R463.1 million to the Provincial Revenue Fund because of delays in procurement of land. Speaking to the performance of the individual provincial departments it was noted that in Health, R186.7 million was underspent, because of delays in filling professional posts in recategorised hospitals. Goods and services underspending of R515 billion was mainly because of unprocessed invoices to the National Health Laboratory Services. R903.1 million was stopped in Human Settlements due to poor spending performance and this amount was reallocated to other provinces. Here too, there was underspending of R338.6 million, as payments for invalid contracts were stopped, and there had been instability at leadership level. The Road and Transport provincial Department had also had to surrender R114 million to the Provincial Revenue Fund, as it had struggled to fill infrastructure related posts. There had, however, been overspending through purchase of a construction fleet. National Treasury was satisfied, overall, that this province was showing a stable fiscal position with a cash balance of R7.9 billion by 31 March 2016. Personnel management was under control. It had a healthy budget surplus and total cash balances amounted to R7.8 billion by the end of March. 

The Gauteng Provincial Treasury told the Committee that the province accounted for the largest share to the national economy. Risks to the provincial economy included weak global demand, low commodity prices, constrained household finances and low business and consumer confidence. Pre-audited provincial revenue collection showed a total of R5.4 billion, representing an over collection of 10%. At the end of the fourth quarter, GPG had recorded cumulative expenditure of 94.8 billion, or 98% of its budget. The specific line item spending was summarised in each of the departments. Health showed 2% underspending, Education underspent also by 2%, Human Settlements had a revision downwards from its budget, of R908 million, as a result of underspending. Roads and Transport spent R6.2 billion. Sport, Recreation and Culture underspent by 11%, because of infrastructure related delays. Cooperative Governance under spent by 11% due to delayed implementation of the Provincial Disaster Management Centre. Gauteng Legislature under spent by 9% due to delays in filling of vacant posts and public education workshops that were put on hold. R16.2 billion was spent on conditional grants and this showed underspending by 2%. Compensation of employees was under 60% of the total GPG budget and there had been underspending. . 

Members asked the implications of the R2.2 billion underspending on service delivery and if the delay in processing of invoices meant the GPG had challenges in supply chain management. Questions were asked as to why there had been such significant spending on tablets since it had been suggested that these might be donated by private companies, when the Smart Programme was launched. Members asked if Gautrain accounted for the loan given to it by the state. They asked if any departments owed municipalities and what measures there were to deal with unauthorized expenditure, as well as whether the positive bank balance represented moneys owed elsewhere but not paid over, or money generated. They commented that the Provincial Departments of Education and Health were showing too great spending on consultancies, noted that permanent employees should be appointed. They were interested in how small to medium enterprises were benefitting on the high infrastructure spend, and how the Health, and Roads and Transport departments' unauthorised expenditure was being tracked and controlled. Overall Members were pleased to note the control that the Gauteng Premier was exercising.
 

Meeting report

Gauteng Provincial budget 2015/16 Third and fourth quarter expenditure: National Treasury Briefing
Ms Ogalaletseng Gaarekwe, Acting Chief Director, National Treasury, said Gauteng underspent by R2.2 billion in the 2015/16 financial year, but over spending was projected as R317 million in the third quarter. The R2.2 billion underspending was mainly due to the figures for compensation of employees. Delays in the completing of 18 schools that were supposed to open in January 2016  contributed to underspending by R832 million, as about 2 078 educators, deputy principals, heads of departments and other public servants should have been appointed. The  province also had to surrender R463.1 million to the Provincial Revenue Fund, because of delays in procurement of land.

She proceeded to tell the Committee what departments showed particular under or over spending. In Health, R186.7 was underspent by delays in filling of professional posts, in re-categorised hospitals. Goods and services underspending of R515 billion was mainly because of unprocessed invoices to the National Health Laboratory Services.

R903.1 million was stopped in Human Settlements due to poor spending performance and these amounts were reallocated to other provinces. It also underspent by R338.6 million as payments for contracts with invalid contracts was stopped. There was instability on the position of the Head of Department as the current Head was appointed for only six months.

In Roads and Transport, R114 million was surrendered to the Provincial Revenue Fund for compensation of employees, as this department had struggled to fill infrastructure related costs. As part of a turnaround plan, a construction fleet was purchased in 2015/16, resulting in overspending of R140 million.

She concluded that the province was showing a stable fiscal position with a cash balance of R7.9 billion by 31 March 2016. Personnel management was under control as head count increased by only 445 posts. The province should be able to manage its fiscal liquidity risks, given the budget surplus and a positive provincial bank balance.

Discussion
Mr L Nzimande (ANC KwaZulu Natal) asked about the implications of the underspending on service delivery

Mr S Terblanche (DA, Western Cape) asked if the delay in processing of invoices meant the Gauteng Provincial Government (GPG) had challenges in supply chain management.

Mr M Chetty (DA, KwaZulu Natal) said the R2.2 underspending was far too much, and so were the amounts of the overspending on infrastructure.

Mr E Mtileni (EFF, Limpopo) said that the National Treasury had suggested that part of the overspending related to the purchase of tablets. However, when the MEC launched the Smart programme, he said private companies were going to donate the tablets for schools. He asked if Gautrain accounted for the loan given to it by the state.

The Chairperson said Mr Mtileni’s question was dealt with in the budget review on the management of State Owned Companies. This report was revealing the overall fiscal position on budget, control measures in terms of the Public Finance Management Act, and any problems noticed will be handed over to the Appropriations Committee.

The Chairperson asked that the National Treasury must include a statement on accruals in its next presentations on the provincial spending.

Ms Gaarekwe replied that provinces were in the process of processing their annual statements and accruals were only available after 31 May in any year. The R2.2 billion underspend was seen across all departments. Health and Education used to overspend, but this was now under control. The schools that were scheduled to open and did not contributed much to under spending. The learner teacher material demand had increased as more people migrate to Gauteng. This province had also procured its own fleet on Transport as some contractors were under performing.

Ms Nomfundo Tshabalala, Head of Department, Gauteng Provincial Government Treasury, replied that donations of tablets were made, but not all schools were covered and this had to be funded from the fiscus. The late processing of invoices in the National Health Laboratory Services (NHLS) was because the NHLS owed the GPG R1.3 billion after having found to have overcharged it on certain services.

Gauteng Provincial Treasury briefing on 2015/16 expenditure by the departments
Ms Tshabalala said the Gauteng Province accounted for the largest share to the national economy. Risks to the provincial economy included weak global demand, low commodity prices, constrained household finances and low business and consumer confidence. Pre-audited provincial revenue collection shows a total of R5.4 billion, representing an over collection of 10%. At the end of the fourth quarter, GPG recorded cumulative expenditure of R94.8 billion or 98% of its budget. 

She noted the following departmental figures:
- Health spent R34.5 billion and there had been 2% under expenditure on district health services, provincial hospital services and emergency medical services.
- Education spent R36.2 billion and underspent by 2%.
- Human Settlements spent R4.7 billion and R908 million was revised downwards from its budget.
- Roads and Transport spent R6.2 billion.
- Sport, Recreation and Culture spent R705.6 million and recorded an under expenditure of 11% on infrastructure related delays.
- Cooperative Governance spent R368.9 million and under spent by 11% due to delayed implementation of the Provincial Disaster Management Centre.
- The Gauteng Legislature spent R547.1 million and under spent by 9%, due to delays in filling of vacant posts and the fact that public education workshops were put on hold.
- R16.2 billion was spent on conditional grants and this showed underspending by 2%.
- Compensation of employees expenditure was R51.6 billion and there was under expenditure of R1.2 billion. Compensation of employees was under 60% of the total GPG budget.

At the end of March 2016, total cash balances amounted to R7.8 billion.

Discussion
The Chairperson said provincial governments can only spend the money they had, and could not spend what they had not been allocated. The report of 18 June 2015, by the National Treasury, also noted this. He asked if any departments owed municipalities, and what measures there were to deal with unauthorised expenditure. The surplus budget in GPG meant it had enough capacity.

Mr Terblanche said GPG had serious problems with capital works. It had bought equipment that it cannot use. It supply chain policies seemed not to be in place. He asked if the bank balance was money due to National Treasury or was generated in the market.

Mr L Gaehler (UDM,Eastern Cape) said the Provincial Departments of Education and Health had higher expenditure on consultancy, and asked if there were any plans to bring this down. The country was sitting with high unemployment and people could be appointed on a permanent basis. He asked how small to medium enterprises were benefitting on the high infrastructure spend, particularly in health and education.
Mr Mtileni asked what kind of special services the consultancies were offering that the GPG or other government departments cannot offer.

Mr S Mohai (ANC, Free State) asked how the GPG was dealing with the Departments of Health, and Roads and Transport, in terms of their unauthorised expenditure, and whether this was in accordance with PFMA regulations.

The Chairperson asked about any contribution of tourism to the GPG economy.

Mr Jeffrey Mashele, Deputy Director General, Gauteng Provincial Treasury, replied that there were departments with supply chain management challenges, such as the Department of Human Settlements, but others were working very well. Departments were now required to start preparing supply chain management documents, and tenders,  before the start of every financial year. In relation to the surplus income, he noted that some of it was generated in the market and the over collection of money by other departments. The reserves were also able to cushion the GPG against National Treasury cuts in budgets. National Treasury regulations recommend that a gap analysis should be carried out before a consultant can be appointed. Consultancies were usually for short term research, to do feasibility studies. Nursing agencies were also contracted, so that services do not collapse. Some departments owed municipalities and most of the money owed related to taxes and rates. Departments were being urged to pay municipalities so that they were not bankrupted, and about R400 million was transferred to municipalities last year. The money owed by the Department of Roads and Transport was an inherited problem, especially in relation to bus transport.

Ms Tshabalala replied that supply chain management were a specific skills requirement in all the chief financial officers whose work was geared towards procuring goods. However, in the Department of Health, for example, officials may be good at procuring medicines, but not good on infrastructure development specifications. The challenges lay in developing the right specifications. In the Department of Health, consultancy fees included money for litigation, and this was a problem countrywide, especially in relation to medical negligence and attitude of workers. The GPG had a policy that there will be subcontracting on small to medium companies, on bigger projects, and it also ensured that they were not being bullied. It introduced a transparent tender process to deal with issues of perceived corruption. A probity audit was done for tenders above R50 million. The adjudication of shortlisted companies happened in the full view of media and bidders. It was hoping to eradicate irregular expenditure in the long run. She pointed out that tourism was not a major contributor to the Gauteng economy.

Mr Terblanche commended Gauteng for its transparent tender and adjudication process.

The Chairperson said that, following the placing of Limpopo under administration, Parliament was found to have been somewhat lacking in how it was doing oversight on provincial governments. The Chairperson noted that the Committee would be  calling in the Chief Procurement Officers to brief on what had happened in provinces since those persons were appointed. He noted that the economists were commending the Gauteng Premier for what he was doing in the province.

The meeting was adjourned. 

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