The National Treasury firstly presented a summary of the third and fourth quarter expenditure for the provinces of Free State, Western Cape and Mpumalanga. However, it was emphasised that these figures had not yet been audited so that there might still be some adjustments. Free State spent 99% of the budget, resulting in preliminary underspending of R286 million. In this province the Department of Police, Roads and Transport was the only department that overspent R12 million. There had been changes to the projected over-spending that was forecast in the previous quarter. Overall the grant spending in this province was at 97%. There was a total under collection of own revenue of R55 million by the Departments of Health, Economic Development, Roads and Transport, and cash balances, although they had declined, were still an improvement on the negative position in the third quarter. Compensation of employees showed overspending but there was underspending on goods and services, transfer payments and capital assets amounting to R669 million in total. Health services also showed underspend in some areas, but District Health Services showed overspending by £221 million.
The Western Cape had spent 98.2% of its adjusted budget. The Department of Education underspent by R261 million, because of personnel controls but it was noted that it had a high learner : teacher ratio, because of learner inflow from other provinces. There was significant underspend on goods and services, property payments and inventory, but overspend of R67 million on transfers relating to leave gratuities. The Department of Health underspent R146.6 million due to recruitment process that took longer than expected, underspending on goods and services, but savings of R70.3 million on transfers and subsidies as a result of lower than anticipated medico legal settlements. Delays in procurement led to underspend in infrastructure.
Mpumalanga provincial government had projected overspending on goods and services in the special projects under examination and education related services. The Community Safety, Security and Liaison projected overspending was mainly due to accruals for security operations and additional security provided to the Department of Health. The Department of Human Settlements had already projected over expenditure on communications and title deeds handover events. The Provincial Treasury had under-spent on the provincial revenue enhancement and delayed preparation of annual financial statements Some expenditure occurred that was not budgeted, which included purchase of cars for traditional leaders, construction and take over of clinics.
Each of the provinces then had the opportunity to make a presentation about the results. The Free State Government said departments were in the process of finalizing the 2015/16 pre-audited figures, therefore there were virements and journal entries that could still be passed, which would have an impact on the outcomes. The expenditure figures and requests for budget were fully outlined. Preliminary under expenditure for the province amounted to R286.4 million, of which conditional grants accounted for R210.2 million or 73.4%, and the province had requested a conditional grant rollover on that. There had been overspending on Compensation of Employees, and there was underspending on Goods and Services. The Department of Education also showed under-expenditure, largely because it was not able to transfer subsidies to schools or to pay provincial bursaries. Overall the Province underspent by R286.5 million or 1.0%, and had requested a R192.6 million roll-over. While the province is promoting stringent cash management practices, the Provincial Revenue Fund had to transfer more funding to deal with outstanding accruals at the Department of Education in particular.
The Western Cape Government was insisting on monthly reports being given. The largest share of the budget was put to public ordinary school education, but there had been spending of R12.9 billion, falling short of the R13.2 billion projection. There was no irregular expenditure, and proper governance, management and financial risk were being enforced.
The Mpumalanga Provincial Government said the province spent 99% of its adjustment budget of R38.7 billion. Four departments that underspent in excess of 2% were Office of the Premier, Provincial Legislature, Department of Culture, Sports and Recreation and Human Settlements. Overspending happened in the province's Departments of Agriculture, Rural Development, Land and Environmental Affairs. Compensation of employees noted an underspend because of a posts moratorium.
Members showed particular concern on the position of the Mpumalanga Health Department and commented that the figures for irregular expenditure were far too high. Concern was expressed about under spending in education in the Free State, and it was asked to comment on plans to curb its irregular expenditure. Members asked that accruals in the Western Cape also be examined. Members commented on the struggle to get the right skills in Western Cape, the position with RDP houses, and the amounts spent on consultancies. They asked about plans to expand the ICT infrastructure spend. Mpumalanga was criticised for its spending on cars for traditional leaders, and some unauthorised spending, and asked what caused the withdrawal of the coal haulage grant. Members also asked if provinces had any plans for economic activities, in the era of fiscal consolidation
Western Cape, Free State and Mpumalanga provincial spending: National Treasury report
The Chairperson was happy that MECs from the provinces were present. He emphasised that the Committee wanted to hear how provinces were adhering with PFMA guidelines, enhancing good governance and fighting corruption.
Ms Ogalaletseng Gaarehle, Acting Chief Director, National Treasury, first presented on the position in the Free State. She said Free State spent 99% of the budget, resulting in preliminary underspending of R286 million. Department of Police, Roads and Transport was the only department that overspent R12 million. The expenditure represented movement of R1.1 billion from the projected over expenditure of R887 million at the end of the previous quarter. Overall, the grant expenditure was at 97%. There was a total under collection of own revenue of R55 million by the provincial departments of Health, Economic Development, Roads and Transport. The cash balance declined from the previous month to a positive R45 million, but had improved significantly from the negative balance at the end of the third quarter. The Department of Education underspent by R181 million, moving from a projected overspending of R557 million. It overspent R447 on compensation of employees, while underspending was apparently on goods and services, transfer payments and capital assets, amounting in total to R669 million. Department of Health underspent R86 million on compensation of employees, and on capital assets by R28 million. District Health Services was overspent by R221 million while all other service delivery programmes reflect underspending.
The Western Cape had underspent R922.8 million after spending 98.2% of its adjusted budget. The provincial Department of Education underspent by R261 million, due to personnel control measures put in place. However, the province had a higher learner: teacher ratio due to learner inflow from other provinces. They was also significant underspend on goods and services items such as property payments (which mainly caters for municipal services and maintenance) and inventory, relating to school furniture. There was an overspending of R67 million on transfers relating to leave gratuities. The Department of Health underspent R146.6 million due to recruitment process that took longer than expected. Goods and services underspending here was R124 million, with the biggest contributors to this being laboratory services and property payments. There were savings of R70.3 million on transfers and subsidies as a result of lower than anticipated medico-legal settlements. Infrastructure also underspent due to delays experienced in procurement processes such as tender advertising. Issues with problematic projects such as the Vredenburg hospital had been resolved and a new contractor had been appointed.
The provincial government of Mpumalanga projected overspending on goods and services in the special projects under examination and education related services. Community Safety, Security and Liaison projected overspending was mainly due to accruals for security operations and additional security provided to the Department of Health. The provincial Department of Human Settlements projected over expenditure on communications and title deeds handover events. The Department of Finance underspent on the revenue enhancement strategy as well as delayed preparation of annual financial statements for NPOs and NGOs. Unbudgeted expenditure had been incurred on procurement of vehicles for traditional leaders, construction of traditional council offices, provincial takeover of clinics and accruals which cannot be cash backed.
Free State Government Presentation
Ms Elzabe Rockman, MEC for Finance, Free State Government, said departments were in the process of finalizing their 2015/16 pre-audit figures, and therefore there were virements and journal entries that could still be passed which will have an impact on the outcomes. The province spent an amount of R29.569 billion or 99% of the allocated budget. The preliminary under expenditure for the province amounted to R286.4 million, of which conditional grants accounted for R210.2 million or 73.4%. The province requested conditional grant rollovers to the value of R192.6 million. The province collected R980 million or 97.2% and recorded preliminary under collection of R28 million. The unfavorable socio-economic conditions impacted negatively on the ability of the province to generate estimated revenue. Compensation of Employees (CoE) spend was R17.9 billion or 102.2% representing R390.9 million or 2.2% over-spending mainly due to higher than anticipated improvement in conditions of service (ICS) and payment of accruals of housing allowance and medical contribution. Goods and services spending was R5.3 billion or 97% with under-spending of R161 million or 3% of the available budget as a result of cash flow challenges experienced by the provincial Department of Education. Transfers and subsidies recorded an expenditure of R3.9 billion, or 91.9%, with the under-spending of R342.7 million or 8.1% mainly due to this department not being able to transfer subsidies to schools and payment of provincial bursaries. Payment for capital assets showed spending of R2.5 billion or 93.4%, representing an under-spending of R175.1 million or 6.6%. Overall, the Province underspent the 2015/16 budget by R286.5 million or 1.0%, of which R192.6 million was requested for roll-over. While the province was promoting stringent cash management practices, the Provincial Revenue Fund had to transfer more funding, mainly to the Department of Education, to address outstanding accruals. This department started the 2015/16 financial year with backlog PERSAL deductions as well as BAS payments amounting to R796 million, which were transferred to the department during the first two weeks of April 2015. It should also be noted that the adjustments for cost of living (salary increments) were effected already in April 2015, while the funding for this purpose was only made available by National Treasury after the adjustment budget processes.
Western Cape Government 2015/16 presentation
Dr Ivan Meyer, MEC for Finance, Western Cape, explained that all accounting authorities of the different votes and entities submitted certified monthly expenditure, revenue and projections on the 15th of every month. The largest share of the 2015/16 adjusted budget was allocated towards public ordinary school education, and that amounted to R13.2 billion. The preliminary spend on this programme was R12.9 billion, with R190.9 million spending on compensation of employees.
The rest of the presentation consisted of graphs showing expenditure per programme (see attached presentation for all details). There was no irregular expenditure. Fiscal and budget policy principles continued to guide provincial expenditure and the reinforcement of principles had resulted in no overspending for 2015/16. The Western Cape will continue to balance public finances and maintain fiscal stability with a constrained fiscal environment. There was particular emphasis on appropriate management of fiscal risk, strengthening fiscal consolidation and enabling government to be responsive in dealing with unforeseen and unaffordable expenditure.
Mpumalanga Provincial Government Presentation
Mr S (Eric) Kholwane, MEC for Finance, Mpumalanga, said the province spent 99% of its adjustment budget of R38.7 billion. The pre-audited figures will be available on 31 May 2016. Four departments that underspent in excess of 2% were the Office of the Premier, Provincial Legislature, Department of Culture, Sports and Recreation as well as Human Settlements. The Department of Agriculture, Rural Development, Land and Environmental Affairs overspent its adjusted budget. Compensation of employees showed an underspend of R141.997 million, as a result of a moratorium in place. Accruals will be disclosed by various departments on 31 May 2016. The presentation contained a number of tables and graphs showing expenditure per department, including accruals and debts.
Mr F Essack (DA Mpumalanga) said the Mpumalanga Department of Health was not healthy, as it was showing the largest share of accruals, fruitless and wasteful expenditure. He asked if there was a sustainable plan in place to curb this. He also referred in this regard to the Department of Sports and Culture. He commented that the figure of R4.4 billion irregular expenditure was far too much. He asked why there was underspending in the Department of Human Settlements, by R159 million.
Mr Essack commented that the Free State underspending in education was a further concern and he asked if it had any plan to curb fruitless and wasteful expenditure
Mr Essack asked why there were accruals of R2.7 million to the Western Cape in Transport and Public Works.
Mr T Motlashuping (ANC-North West) asked why the Western Cape was struggling to attract people with the right skills. The RDP houses list precedes their construction and he asked if it constructed houses without having the people to occupy them. He asked where over collection came from in the Western Cape.
Mr Motlashuping asked how Free State was applying cost containment measures and if there were learners without support material. He asked why it had an oversupply of medical products.
Mr V Mtileni (EFF Limpopo) said none of the presentations had noted the amounts being spent on consultancies and litigation. He asked why Mpumalanga had bought cars for traditional leaders, which were unauthorised. He asked in which financial year the traditional council offices were constructed. He asked what remedial action the National Treasury took in relation to continuous underspending by provinces.
Ms T Motara (ANC Gauteng) said economic development agencies such as MEGA received increased revenue by 107% with no return. She asked for the plans, bearing in mind what the National Treasury had said to the effect that economic development agencies must be self-sustainable. She asked why some accruals could not be cash backed.
Mr L Nzimande (ANC KwaZulu Natal) asked what caused the withdrawal of the coal haulage grant. He asked what challenges the Free State government was facing with NPO funding guidelines.
Mr S Mohai (ANC Free State) asked the plan for expanding ICT infrastructure spend in the Western Cape. He asked if the provinces had any plans for economic activities in the light of fiscal consolidation.
Mr Kholwane (Mpumalanga) quipped that the Department of Health did indeed used to be in the position of being “in the ICU” but was now “ready for discharge”. He had dismissed the former Chief Financial Officer in this department and her entire team, and appointed new persons. The Department of Human Settlements underspent because of delays by municipalities in finalising plans for water services. The Committee can engage with the Standing Committee on Public Accounts (SCOPA) on issues of concern. The issue of traditional leaders needed to be discussed. He noted that it was not possible simply to give money away wholesale in Mpumalanga. Money was allocated for traditional leaders' cars. Mpumalanga was not going to close its Economic Development agency, but would be reducing the grant to MEGA gradually. He explained that the 107% increase was because of a specific mandate, and no department could be given an additional mandate without funding. MEGA will not be shut down until something else happens from government to deal with the rural landscape in Mpumalanga. He commented that he could look to the possibility of merging some entities, as had been the case with Free State, so as to reduce the numbers of entity boards. The coal haulage grant was still in discussion with National Treasury, as haulage trucks continued to damage roads, which would be an ongoing problem until migration to rail transport. He will assist the departments in dealing with irregular and unauthorized expenditure by assessing statistics monthly and strengthening preventative control in departments. Some of the issues could have been avoided if the provincial government had been more proactive in the past. Critical areas for procurement related to contractors who tried to alter terms of reference after being appointed. He could not say how much was spent on consultancy, but a directive was issued to reduce costs on consultancies as people were appointed on the basis of the skills that they themselves had to do the job themselves.
Ms Rockman (Free State) replied that she was implementing cost containment measures, but this was impossible in some areas such as agriculture, where the province had seen disease outbreaks. The Free State would be submitting a report on the amount spent on consultancy. There was a plan in place for medico legal claims and the province strongly advises against anyone entering into a commitment without the guarantee of the State Law Advisors. It was very difficult to manage accruals and this indeed leads to a lot of aggravation within departments. It was too early to say anything on procurement reforms but it had some negatives. Free State used to have 50 SMEs distributing textbooks but now had only two KwaZulu Natal companies. This negatively affected local economic development. However, the interaction with the central supplier database and the revenue service had positive results.
Mr Godfrey Mahlatsi, Head of Department, Free State Provincial Treasury, explained that it was not possible to try to deal with compensation of employees as an event. The Treasury was investigating irregular expenditure within departments and departments must take corrective measures. Irregular expenditure moved from R2 billion to R834 million. Speaking to the budget, he explained that growth of allocations in Health was below inflation, but most medicines came from abroad and exchange rates had strong impacts on procurement of medicine.
Dr Meyer (Western Cape) replied that he had commissioned studies in towns with growth potential, to allocate a budget. The provincial study was on growth opportunities in the provinces and this had identified three potential sectors which would be able to offer employment absorption. Those were oil and gas, tourism, and small town successful agro processing such as a halaal food park. There was a need to invest in water, broadband and infrastructure to support economic growth. The ICT vision was to bring broadband to everyone in the Western Cape. The provincial government was currently trying to connect 2 000 buildings such as schools, hospitals and government buildings, in recognition that the Western Cape needs connected citizens and connected business. It aims to bring internet to small businesses and citizens, including those in rural areas.
Mr Zachariya Hoosain, Head of Department, Western Cape Provincial Treasury, Western Cape, replied that over collection was seen in gambling services. A separate document on consultancy would be sent to the Committee Secretariat. He reported that he was building capacity in supply chain management and skills in supply chain practitioners, including municipalities. There were technical support groups that supported provincial departments in supply chain. The government was actively engaging with the Office of the Chief Procurement Officer on the consequences of local economic development strategies because of the central supplier database. It was struggling to attract quantity surveyors and this was a problem across the country.
The meeting was adjourned.
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