National Treasury presented the aggregated budgets and expenditure for the provinces of Limpopo, Eastern Cape and the Northern Cape, with a focus on overspending and underspending. A summary of key conclusions and financial risks over the 2016 MTEF showed that the Eastern Cape and Limpopo had tabled surplus budgets for unauthorised expenditure. The Northern Cape budget reflected a surplus of R1 billion before financing. A portion of that amount would be used for the debt redemption strategy.
Limpopo Provincial Treasury said that there had been 98.3% spending on the overall allocated budget. 104.7% of the own revenue target was collected. The Provincial Treasury monitored provincial spending on a regular basis. There were quarterly bilateral meetings where departments accounted to the Finance MEC. Budget and expenditure performance was reported monthly to the HOD forum and executive council. Key priority areas were aligned to available resources to prevent wastage.
Eastern Cape Provincial Treasury reported that there was concern about low levels of industrialisation and beneficiation in the province. The existing intergovernmental fiscal framework limited the ability to fund economic development projects. Policies and legislation on land administration on communal land held back public and private investment in the economy. There was concern about underspending in some departments. The province had introduced an accountability model and financial pledges by MECs and HODs to ensure credible spending.
The Northern Cape Provincial Treasury noted that the mining sector was the largest contributor to the provincial economy. The electricity sector had doubled its contribution over the preceding 10 years, but labour absorption was still low (1%). Challenges to revenue collection included motor vehicle licences; non-payment of motor vehicle licences by municipalities, and non-collection of medical aid claims. Conditional grant expenditure challenges included slow delivery on infrastructure projects; outstanding invoices not paid at year end, and the late appointment of contractors. The province last used an overdraft facility in the 2010/11 financial year. Accruals amounted to R1 billion.
In discussion, Members commented on the fact that overspending on goods and services, and underspending on infrastructure was prevalent in all three provinces. Fruitless and wasteful, irregular and unauthorised expenditure caused concern. There was interest in consequence management. MECs were thanked for interventions related to Education and Health, and for the development of an accountability model. There were remarks and questions about licences, and the payment of invoices within 30 days. Members referred to the dire implications for Small and Medium Enterprises (SMMEs) if the 30-day invoice payment regulation was not adhered to.
Introduction by Chairperson
The Chairperson noted that it was the second series of provinces that were to present on their 2015/16 expenditure. National Treasury would first provide an overview, and then the three provinces would make their presentations. The objectives of government were good governance and sound financial management. Compliance with the Public Finance Management Act (PFMA) had to be enhanced, as well as respect for the Constitution. Government was accountable to the people about how their taxes were spent. Parliament had to be activists against corruption and for change. The Division of Revenue Bill was circulated to the provinces. He encouraged all to have the document in their cases. There had to be understanding of “Mrs de Goede, who lived in Garies”. Citizens had an active role to play. Parliamentarians were activists.
National Treasury: Eastern Cape, Limpopo, Northern Cape expenditure for 2015/16 Quarter 3 & 4
Ms Ogalaletseng Gaarekwe, Acting Chief Director: National Treasury, presented the provincial aggregated budgets and expenditure as at 31 December 2015 for the Eastern Cape, Limpopo and the Northern Cape. On that date, The Northern Cape projected to overspend by R89.9 million or 0.6%. As at 31 March 2016, there was overspending of R177.5 million. The Eastern Cape had an overall projected underspending of R566.4 million in December 2015. By 31 March 2016 it had increased to a total of R2.1 billion in all departments. On 31 December 2015, Limpopo province had an overall projected overspending of R230.5 million. By 31 March 2016, Limpopo had drastically changed, where all departments had underspent by R922 million. A summary of key conclusions and fiscal risks over the 2016 MTEF showed that the Eastern Cape had tabled a surplus budget to provide for unauthorised expenditure. The overall provincial budget for Limpopo grew by 5.7% over the 2016 MTEF. The province tabled a surplus budget to provide for unauthorised expenditure. The Northern Cape budget reflected a surplus of R1 billion over the MTEF before financing. A portion of the surplus was for the debt redemption strategy.
The Chairperson thanked the Treasury for this important information. It was important that MECs were present. The MECs present today would be the first to appear before the Committee. The MEC was the political head of the department and had to lead by example. The National Council of Provinces (NCOP) had the provincial mandate. The question was how national government could assist the provinces to enhance economic growth and create employment in cities, big towns and townships. The question was how the provincial development strategy fitted into the national strategy. But that would have to be dealt with in another meeting. Each MEC would be allowed to make an input. The Committee was not there to fight with officials. MECs in the past felt jittery. Parliament and the provinces was a collective, with an interest at national level. There was not much concern about accruals in the previous year, but he thanked Treasury for bringing it into the picture, because it indicated a fiscal position. It was important to know what was allocated from the National Treasury, and what was available as own funding. Own funding created space to move. Gauteng had R7.8 billion in cash available, which gave the province space to move. Limpopo was out of the section 100(1)(a) intervention. The MEC had the steering wheel back in his hands again, and things could improve, albeit under difficult circumstances. It was not encouraging to see e-news images of trucks with mobile classrooms moving into an area in Limpopo, and parents escorting children to school for their safety. The community and government was coming together to rectify what went wrong. Classrooms burnt down were not a good picture for the world to see. The world had to see people clap and sing hallelujah, thank you for what we got.
Limpopo Provincial Government presentation on revenue/expenditure for 2015/16 Quarter 3 & 4
Mr Rob Tooley, Finance MEC, said the province had achieved 98.3% spending on its overall allocated budget and managed to collect 104.7% of the province’s own revenue target. The Provincial Treasury monitored provincial spending on a regular basis and conducted quarterly bilateral meetings with departments where each departmental executive management accounted to the Finance MEC in the presence of the departmental executive authority. Budget and expenditure performance was reported monthly to the HOD forum and executive council. Such engagements assisted the province in the alignment of key priority areas to the available resources and in ensuring that funds appropriated were utilised for intended purposes with minimal wastage.
Eastern Cape Provincial Treasury presentation on revenue/expenditure for 2015/16 Quarter 3 & 4
Mr Sakhumzi Somyo, Finance MEC, and Mr Joe Mhlomi, Provincial Treasury DDG: Sustainable Resources Management, presented. The provincial government was concerned with the low levels of industrialisation and beneficiation in the province. The existing intergovernmental fiscal framework limited the province’s ability to fund economic development projects. Policies and legislation on land administration on communal land continued to hold back both public and private investment in the economy, including agriculture. The Provincial Treasury would continue with the commissioning of a study on the provincial government’s own revenue potential. Underexpenditure in some departments remained a concern. Remedial steps included the sitting of the Sub-Cabinet Budget Committee to focus on infrastructure delivery. An in-depth analysis of service models and organograms was being undertaken to stabilise personnel costs through the Provincial Coordinating Management Team. The province introduced an accountability model as well as financial pledges to be signed by officials and MECs to ensure credible spending.
The Chairperson commented that the last remark about monitoring and evaluation was important. Not only the Premier’s Office, but also regional managers had to meet.
Northern Cape Provincial Treasury presentation on revenue/expenditure for 2015/16 Quarter 3 & 4
Mr Mac Jack, Finance MEC, and Mr Vuyi Gumbo, acting HOD, Northern Cape Provincial Treasury, presented. The mining sector continued to be the largest contributor to the provincial economy, accounting for a quarter of the provincial economy. The electricity sector doubled its contribution to the economy in the preceding ten years, but labour absorbed by that sector was still low (1%). Challenges to revenue collection included motor vehicle licences, non-payment of motor vehicle licences by municipalities, and non-collection of medical aid claims. Conditional grant expenditure challenges included slow delivery on infrastructure projects; outstanding invoices not paid at year end, and late appointment of contractors. Provincial budget and expenditure summaries were presented for Health and Education, and infrastructure expenditure outcomes for a number of departments, including Agriculture and Roads and Public Works. The province last used an overdraft facility in the 2010/11 financial year. In the 2014/15 financial year accruals amounted to a total of R1 billion, of which Roads and Public Works accounted for R536 million. Irregular expenditure was mainly due to non-compliance to supply chain management prescripts. Failure to pay suppliers within 30 days was one of the reasons for fruitless and wasteful expenditure by departments, due to interest charged by suppliers for overdue accounts.
The Chairperson noted that motor vehicle licences had also come up when the province presented previously. Parliament had tried to do an intervention. There was engagement with the South African Local Government Association (SALGA). Service delivery was a challenge in the Northern Cape, which was the largest province. Gravel roads had a serious impact on service delivery. Provinces had to travel to the rural areas. He noted that the Auditor-General (AG) was there and listening. There would be engagement with the AG when the Committee returned from the elections. There was low spending of grants in agriculture. There was a trend that transfers were expected in February/March, but were delayed because small municipalities were not ready. In his region, libraries were linked to schools. Spending was important for infrastructure because it provided facilities to learners. He thanked the MEC for Northern Cape for the intervention in Health, and the MEC for Limpopo for the intervention in Education. The role of the finance committee in the provincial legislature, and Standing Committee on Public Accounts (SCOPA), was to dig deeper when departments presented information. The quality of the information at such a meeting would inform decisions that the Committee would take. There would be quarterly reports coming in the new financial year. Things linked with one another, which was why the NCOP with its structures was relevant. It was important to get the picture from the provinces regarding budget and expenditure, and the surplus and deficit parts. The last four pages of the Treasury presentation were crucial because it indicated the fiscal position. He asked that in the Budget Council that slide had to come onto the screen, to give the real picture to the Minister and Deputy Minister. Parliament would inform the Minister what the picture was in the nine provinces.
Mr T Motlashuping (ANC, North West) welcomed the picture of the provinces provided by the presentations. The task of Parliament was to see that appropriated funds were accounted for. Members would interrogate the information in good faith. There was a presentation on Municipal Infrastructure Grant (MIG) funding the day before, and the picture for Limpopo and the Northern Cape did not look good. He asked where the challenges and problems were. Overspending on goods and services cut across provinces. He asked if cost containment measures advised by the Minister, were being followed. There were reports on fruitless, wasteful and irregular expenditure from all provinces, but no-one spoke of consequence management measures. It was only mentioned that there had been engagements. Someone had to account.
Mr S Mohai (ANC, Free State) said that he would agree with Mr Motlashuping. Reports were useful. There had to be constant engagement with the provinces. The Minister of Finance had emphasised sound management of public finances as the cornerstone. The country’s fiscus had to be responsive to the needs of the people. With regard to fruitless and wasteful and irregular expenditure, problems had to be addressed within the current environment, and within the country’s planning framework.
Mr Mohai referred to the 30 day paying of invoices to small and medium enterprises (SMMEs). The current environment required drastic measures. Non-payment could ruin small enterprises. In economies that relied on SMMEs, such issues were attended to. The Eastern Cape MEC referred to slow industrialisation and beneficiation. State Owned Enterprises (SOEs) such as Eskom had to be 75% local in procurement. It had to be asked why there was a lack of support for local manufacturers. Trade and industry Minister Rob Davies had suggested that the Industrial Policy Action Plan (IPAP) be used. Bottlenecks had to be addressed and critical areas flagged.
Mr O Terblanche (DA, Western Cape) said there was a general trend across the spectrum to overspending on goods and services, whereas there was underspending on infrastructure. Overspending was often on personnel, which was cause for concern. The Eastern Cape faced challenges. Serious concerns had yet to be rectified. There had been quite a turnaround in Limpopo. The provincial government employed a huge number of people. The question was what they were doing. When he saw what was left of the budget, he wondered how much was left to help the public. The trend could not be allowed to continue. There had to be drastic changes. The Chairperson had pointed out that there were matters that remained unchanged since the previous year.
Mr F Essack (DA, Mpumalanga) remarked that there were positive items in the Treasury report. He was not a critic as such because he was an optimist. However, he was concerned about fruitless and wasteful and irregular expenditure. He commented on drastic increases in such expenditure in the Northern Cape during the period 2010/11 to 2014/15. It sounded like millions were coming the Eastern Cape way and there were huge investments. The presentations made everything sound well and good, and admittedly there was progress. But the question was what the picture would look like in the next year in terms of deliverables. Billions and billions were lost because of fruitless and wasteful expenditure.
The Chairperson said that oversight visits would kick in, in August. It was essential to go out and see what was happening at the grassroots level. It was a chance to zoom into what was presented, linked to activities in the provincial legislature. There had to be an integrated approach. It was not only Parliament and the provincial legislature. The President and the Finance Minister had warned that the country could not spend money it did not have.
Mr Tooley, Limpopo Finance MEC responded to remarks about fruitless, wasteful and irregular expenditure. A MIG team was set up in Treasury to assist municipalities to spend, and to develop skills in the build environment. Each municipality had to have the capacity to spend. There was a quarterly meeting with every municipality to see if there were bottlenecks, and to intervene where necessary. Skills were developed in Public Works towards sound management of the fiscus. Serious work was being done about payment within 30 days, in Education and Health. There was no section 18 intervention in Health, but there was work on efficiency. Limpopo paid more over time than any other province. Overexpenditure on goods and services was not good. There had to be procurement planning. Procurement had to be planned appropriately. It had to be seen whether provincial government had an impact on deliverables. With regard to monitoring and evaluation, it had been asked if health was being improved. There were quarterly bilaterals with municipalities. In such meetings the CFO had to undertake with his hand on his heart to not spend money he did not have.
Mr Gavin Pratt, Limpopo Provincial Treasury HOD, responded on fruitless and wasteful and irregular expenditure, saying that most irregularities were related to extension of contracts by HODs beyond the 15% set by national for goods and services. A number of contracts related to the feeding scheme was extended. National was aware of the irregular expenditure incurred, and there was a process of regularising. There was a lack of understanding of the supply chain process. There were standard supply chain operating procedures that were being rolled out to provincial departments. When tenders were signed off, the Accounting Officer had to ensure that it had been signed off by the relevant officials. Skills had to improve in the supply chain area. There had to be quality assurance for tenders. Limpopo Treasury was involved in observation of the tender process. The HOD should be given quality assurance when the tender was awarded that the correct process had been followed. With the quality assurance process, the Accounting Officer did not have an opportunity to cancel a tender at the last moment, for reasons unknown to the Treasury and the department involved. The supply chain process had to be strengthened.
Mr Pratt said that Eskom and Telkom accounts presented a challenge related to fruitless expenditure. Currently invoices were received electronically from Telkom, so that it could not lie on someone’s desk. Eskom needed payment within 15 days from receipt of invoices, whereas the PFMA stipulated 30 days. There were efforts to engage with Eskom. There was fruitless expenditure with regard to officials booking for accommodation and not going. Money was recovered from investigated officials.
Mr Pratt continued that on unauthorised expenditure, Limpopo had come out from the dark ages of R2.7 billion debt at the time of the section 100(1)(a) intervention. The debt was cleared. There had not been overspending on Education over the preceding two years, but there was overspending within programmes. Cash flow would not permit overspending of the Departmental vote. If there was no money, there could not be payment by the bank. The national system would continue to honour compensation of employee payments, but would cut back on their goods and services.
Mr Somyo, Eastern Cape Finance MEC, responded that work was done with the Department of Trade and Industry (DTI) to revitalise industrial centres and to upgrade industrial parks. In the public procurement space decisions were taken at the national level, with respect to matters such as learner support materials. The executive had decided to adapt the procurement framework. It was being locked into provincial space, with benefits to provincial procurement. Procurement powers were used to localise, with benefits to the value chain. Work was done with the Department of Agrarian Reform. The 30 day requirement was a key instrument to encourage the development of SMMEs. The Provincial Treasury was monitoring that. The Eastern Cape was one of the first provinces to pilot central registration of data. All departments had to meet that requirement. What was paid for could be monitored, as well as bills. With regard to irregular and fruitless expenditure, he noted that the province was working hard with the MIG unit to monitor expenses. There was communication with the National Treasury on affected municipalities. The municipal finance unit provided capacity support in the Treasury. It worked with the municipalities to improve expenditure patterns.
Mr Mhlomi, Eastern Cape Provincial Treasury DDG, added about fruitless, wasteful and irregular expenditure, that the key was identification, whereafter it was asked what could be done. Action had to be taken to fill the gaps. There would be an irregular expenditure report at year end. A financial management accountability model had been developed. There was a consequence management framework to hold financial managers accountable. The provincial coordinating management committee dealt with efficiency in spending. If there was not value for money, the technical people would look at the situation on the ground. Section 18 would be used to top slice relevant departments, if fruitless and wasteful expenditure was found. If too much money was moved from one programme to another, in terms of PFMA virement limits, it counted as overspending. In Health, medical-legal could not be shifted any further. The validity of medical claims had to be checked, and there had to be engagement with the department on supply chain management. Some departments were not taking procurement planning seriously, although they professed compliance. Tenders were finalised in the second quarter of the year. Departments planned to delay the process until such time as a deviation could be provided. There was oversight of all procurement structures.
The Chairperson commended the financial accountability model as a plan to address irregular expenditure. Best practice could be learnt from each other.
Mr Gumbo, acting HOD, Northern Cape Provincial Treasury, continued that fruitless and wasteful expenditure was reduced when accruals were addressed. If interest accrued over a long period, it was recorded as irregular expenditure, with intervention under section 18 to minimise and clear accruals. When audited, it was found that there were litigation cases in Health which the department could have prevented. It was recorded as fruitless and wasteful expenditure. A section 18 was needed to build supply chain management and attend to accruals. The capture of invoices had to be centralised. All order books would be centralised until such time as people were trained how to order. Ordering through Head Office could control discrepancies in accruals. There were many invoices that could be viewed in transit. The province had a plan with respect to irregular expenditure, if the Provincial Treasury could get teeth in terms of Treasury regulations. If the Accounting Officer could not take action, it had to be possible for the Treasury to do so. Currently the PFMA allowed the Treasury to intervene in departments. There was a clause in the amendment that allowed the Treasury to take the Accounting Officer to task. Treasury had to be assisted to not only advise but to also take action and intervene effectively. Disciplinary action had to be taken against the Accounting Officer or officials concerned.
The Chairperson remarked that the day’s meeting was a crucial engagement. He thanked the Eastern Cape for the example of developing an accountability model. There had to be a section 18 intervention like in Limpopo, for Education. Parliament were activists for governance and financial management. There would be a meeting on the coming Friday with KZN and North West province, to see what those provinces were doing. The Northern Cape Premier had announced that the Northern Cape mental hospital would be operational in August. He asked if the process was still on track. There had to be a section 18 intervention for Education, as done in Limpopo, to try and turn Education around. Parliamentarians were activists for good governance and sound financial management. That was the message of Parliament. The lives of people had to be improved to give them dignity. There had to be water and sanitation; a roof over the head; warm blankets; food on the table; children going to school well clothed; skoene aan die voete (shoes on the feet), books on the table.
The Committee adopted the minutes of the 11 May on the engagement with the Gauteng province.
The Chairperson thanked all and adjourned the meeting.
- Northern Cape Provincial Treasury on its 3rd & 4th Quarter 2015/16 performance
- Eastern Cape Provincial Treasury on its 3rd & 4th Quarter 2015/16 performance
- Limpopo Provincial Treasury on its 3rd & 4th Quarter 2015/16 performance
- Provincial Budgets and ExpenditureEastern Cape, Limpopo and Northern Cape3rd and 4th quarter 2015/16
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