Department of Public Works Jan-Jun 2016 performance: hearing

Meeting report

Opening and welcoming remarks

The Chairperson, after opening the meeting with a moment for silent prayer and meditation and welcoming all present, outlined that the Committee would be briefed by National Treasury on its 2015/16 fourth quarter report and 2016/17 first quarter report. In terms of the Money Bills Act, the primary role of the Committee was to ascertain whether the spending patterns of the Department were in line with the voted budget and that taxpayer funds were spent in accordance with the provisions of the Constitution in terms of efficiency, effectiveness and value for money. With the deliberations, the intention was to explore and formulate concrete proposals to ensure efforts for radicalising society. She hoped the deliberations would be fruitful, constructive and meaningful.

Apologies

The Committee Secretary outlined that apologies were received from Ms D Senokoanyane (ANC), who was on an oversight visit with the Portfolio Committee on Health, Mr A Shaik Emam (NFP), who was on oversight with the Portfolio Committee on Police and Mr N Kwankwa (UDM), who was abroad at a conference in Germany.

From the Department, an apology was noted from the chairperson of the audit committee and the Director- General, who was attending another meeting but would join the Committee later.

The Chairperson noted that the Committee expected the attendance of the political head to also lead the delegation – this was either the Minister or Deputy Minister.

A representative from the office of the Ministry indicated that the Minister was in the same meeting as the DG. The Deputy Minister left yesterday for a meeting in Addis Ababa.

Mr M Figg (DA) knew where the Minister and Deputy Minister were and he felt the apologies should be in writing.

Ms E Louw (EFF) found that apologies of such nature were becoming a pattern. She would have thought this hearing of the Committee would take priority over any other meeting. She felt that the Committee was being taken advantage of somehow – the Chairperson and Committee Whip needed to start communicating to Cabinet that tabling apologies during the meeting was unacceptable and that the Committee was a priority.  She was concerned that if the pattern was not stopped today it would continue.

Dr C Madlopha (ANC) agreed with the Members but she noted that apologies were received very early from the DG but that he would be joining later.

The Chairperson did outline that apologies from the DG were noted last week already and the Committee discussed if the meeting should still go ahead today or not. She took note of the concerns of Members.

Ms Louw highlighted the importance of having DGs, as accounting officers, present so that recommendations of the Committee could be taken on board immediately.

The Chairperson took the points but asked that the Committee now move forward with the meeting.

Fourth Quarter Expenditure for the Financial Year 2015/16; First Quarter Expenditure for the Financial Year 2016/17

Ms Silindile Kubheka, CFO, National Treasury, began by taking the Committee through the expenditure outcomes of quarter four for the 2015/16 financial year vs. the budget per programme. Some of the main contributors to over/under spending for this quarter included:

-payment of capital assets for the procurement of infrastructure system servers within the ICT unit which could not be processed due to delayed delivery

-R12.482 million surplus on NDGP (indirect grant) – funds were initially transferred but returned in March 2016 due to delays in municipal procurement of service providers and new collaborative urban network precinct planning process which resulted in extended municipal timelines

The presentation also looked at quarter four 2015/16 actual outcomes vs. budget classification – it was noted that there were no major differences between the outcomes and classifications therefore the spending patterns were in line quarter by quarter. 

Ms Kubheka then outlined actual expenditure outcomes for quarter one of the 2016/17 financial year per programme before moving onto noting some of the main contributors for over/under spending in the quarter which included:

-R12.6 million on machinery and equipment for the procurement of servers and storage infrastructure for disaster recovery

-IMFS project related expenditure of R461 million for purchasing of the software licences of which R236 million was paid in May and the remainder of R225 million was paid end of August 2016

-prior year expenditure that could not be accommodated due to financial constraints experienced in the 2015/16 financial year. This was mainly in respect of the payment for financial assets for shares acquisition in the African Development Bank which were due to be paid in 2015/16 financial year but had to be rescheduled to the 2016/17 financial year

Looking at quarter one of 2016/17 actual expenditure outcomes per programme, it was noted that spending patterns were still on trend and aligned to previous patterns however more savings where registered because of cost containment put in place in 2016/17.

Mr Stadi Mngomezulu, DDG: Corporate Services, National Treasury, then took the Committee through the performance achieved in quarter four for the 2015/16 financial year by the total number of 135 indicators:

-93: achieved
-34: partially achieved
-8: not achieved
-0: due for reporting

Looking at the performance of the programmes of the Department in quarter four for the 2015/16 financial year , targets were not achieved in only two of Treasury’s 10 programmes namely, budget office and public finance and financial accounting and supply chain management systems. With performance variance, with some targets the output approval process was external to and outside the control of the Department.

Mr Mngomezulu then turned to discuss the performance achievement under quarter one of the 2016/17 financial year by the total number of indicators where:

-82: achieved
-32: partially achieved
-8: not achieved
-42: not yet due to reporting (noting that this was only the first quarter of the financial year under review)

Some indicators not achieved in quarter one of the 2016/17 financial year included:

- vetting files completed by priority group, submitted to State Security Agency for investigation
-economic policy analyses, research, assessment and advice on macroeconomics including government policy proposals developed
-provincial visits undertaken to improve intergovernmental relations and provincial financial performance
-road shows to retain current and attract new investors
​-knowledge sharing forums in internal audit and risk management facilitated through formal platforms
-universities work shopped on the risk management curriculum
-projects confirmed within integration/spatial transformation zones
-integrated city development projects under implementation
-Jobs Fund evaluation report and dissemination of learning

Performance highlights for quarter one of 2016/17 included:

-928 officials trained on the IDM toolkit
-90.4% of funded positions filled and a 96.2% staff retention rate
-13% higher than expected uptake by staff of development programmes
-100% of government’s liquidity requirements met
-interactions to manage and ensure effective relations with credit rating agencies held
-100% of procurement plans published on the e-tender portal
-49 transaction advisory projects registered
-685 officials in national and provincial spheres of government trained in building public financial management

Mr Mngomezulu then informed Members of which aspects of quarter four of 2015/16 contributed to delivering on the national outcomes. These national outcomes included:

-outcome 4: decent employment through inclusive economic growth:

            -net loan debt as a percentage of GDP
            -value of government gross annual borrowing
            -total number of new jobs contracted for approved and active projects in the Jobs Fund
            -no. of trained placement contacted with active private companies in the Jobs Fund per year

-outcome 8: sustainable human settlements and improved quality of household life

            -total estimated third party investment leveraged
            -no. Of long term urban regeneration programmes registered per year

-outcome 9: responsive, accountable, effective and efficient developmental local government system:

            -no. of neighbourhood development partnership grant projects under construction per year

-outcome 12: an efficient, effective and development orientated public service:

-no. of individuals trained per year to assist with the implementation of financial management reforms   
-percentage of identified transversal contracts with strategic sourcing principles renewed per year

In terms of the performance of conditional grants:

-Financial Management Grants (FMG) were predominately used to augment building capacity in municipalities. In terms of performance achieved:

            -FMG contributed to improvements in municipality audit outcomes
            -built institutional capacity including appointing 1 309 unemployed graduate interns
            -under performance: a 3% under spend due to contractual commitments

-Integrated City Development Grant (ICDG) supported the development of more inclusive, liveable, productive and sustainable urban built environment in metros. In terms of performance achieved:

            -205/16: R251 million allocated to eight metros with 25 integrated zones identified
            -underperformance: 79.3% of the allocation spend was spent as at the end of 2015/16

-Infrastructure Skills Development Grant (ISDG) to develop built environment technical capacity within municipalities. Performance achieved included:

            -2015/16: R124 486 million (100%) transferred to 16 municipalities
            -495 graduates enrolled in programme to date equalling 198% above initial target set
            -one municipality rolled over 1% of the allocation
            -Quarter Four 2015/16 low expenditure due to delays in recruitment by municipalities

-Neighbourhood Development Projects Grant (NDPG) projects so as to improve the quality of life of residents in the targeted areas, generally townships. Performance achieved included:

            -100% of non-financial targets met
            -underperformance: 96% of funds transferred and 76% of funds spent by municipalities

The Jobs Fund: Jobs Fund Portfolio Performance

Mr Andrew Donaldson, Head: Government Technical Advisory Centre, National Treasury, then took the Committee through the next portion of the presentation noting that there were five calls for proposals which were now in the implementation stage and six proposals currently being reviewed by the investment committee. There were six funding rounds and a total of 104 projects which were approved – 97 of which were already implemented. Following approval by the investment committee, there was a period of a few weeks to work out contracting because large sums of money were involved so the detail of the contracts was quite important. Five and a half billion Rands had been allocated to the projects approved to date with companies and organisations also allocating their own resources.

Mr Donaldson explained that disbursements took place over a period of time with most of the projects being implemented over a three or four year period. Some public sector agencies, public-private partnerships and NGOs were project partners. The original 150 000 job creation target of the Fund had already been exceeded – benefit was seen from training opportunities, internships, short-term jobs and longer-term, permanent jobs which was the main objective of the Fund for young work seekers with over half of the opportunities going to women. Many of the projects partners were based in the Johannesburg, Gauteng area but the opportunities were not limited to these areas. The Free State and Northern Cape were not well represented in the geographic spread so far but it was important to note that the agricultural round of projects was only now beginning to come through – this would allow for better representation of such provinces. A wide range of economic sectors were represented in the Fund with agriculture being the largest sector in which there were projects in progress.

The Jobs Fund was a substantial intervention spending around R1 billion a year – while disbursements were not evenly spread in the year, most projects received quarterly funding and as new projects were added the disbursements picked up. The most important intent of the Fund was to pilot new initiatives and provide learning opportunities in how government partnered with the private sector and NGOs in supporting job creation better. Many exciting projects were now being scaled up to provide more opportunities for young job seekers – over the next few years, one would have to look at how to sustainably fund these projects once the Jobs Fund came to an end.

Discussion

Ms M Manana (ANC) welcomed the presentation. On the 2015/16 fourth quarter, she questioned significant funds given to the SA Post Office (SAPO)– as far as Treasury was concerned, what was the financial and operational state at SAPO? How have issues at the SA Post Office affected Post Bank? Were citizens still keen to invest in this bank? She also questioned the municipal grants withheld for the non-compliance with the Division of Revenue Act (DORA) – she sought more detail on this non-compliance and which municipalities were involved. What was being done to ensure such non-compliance did not occur in future? On the first quarter of 2016/17, where would the additional funds sought by the Office of the Chief Procurement Officer be obtained from?

Mr Lungisa Fuzile, DG, National Treasury, although taken by surprise by the SAPO questions and did not have firm answers therefore, noted that the entity was once in difficulty but Minister Cwele replaced the board with an administrator before a full board was then re-appointed. In interacting with the board, there was a sense that matters were on a sound path and although the issues of finances would take some time, the operations of SAPO were progressing. He could not predict on the profit of the entity and said it would be a question best answered by the SA Post Office. The fact that government had guaranteed liabilities should provide comfort for those who had saved with the Post Office.

Mr Figg questioned implications of municipalities not complying with DORA and asked if the only consequence was that grant funding was withheld. At the end of the day, the perpetrators and guilty parties were the officials while the community suffered – was any other further action taken against non-compliance? He strongly felt that further action should be taken besides just withholding money. With the partial achievement of targets, he was not convinced that the term could be used – targets were either achieved or not achieved. He wanted more detail on the under-spending in terms of the NDPG grants and reference made to weather – he understood that infrastructure spending was dependent on weather but SA was experiencing an extended drought so what weather was being referred to?

Ms Louw noted that part of under spending in the fourth quarter of 2015/16 was due to capital assets not procured on time – why was this the case? If this happened, there needed to be consequences for the officials involved. To simply say that this would be mitigated by procuring assets earlier in the future was not good enough in terms of remedial action. She noted reference made in the presentation to outstanding invoices for June 2016 and felt that Treasury should take the lead with invoices paid on time. If Treasury had outstanding invoice payments to the value of R3.3 million, this was not an example to other departments.  Consequence management also needed to come into play in this regard. She agreed that there was no such concept as partially achieved – targets were either achieved or not achieved.  In terms of the performance of condition grants, the presentation highlighted the percentage of allocation spend by the municipalities and she requested that the actual figures be provided to the Committee instead. She noticed that the use of percentages instead of the actual value of the money was a new trend in the presentations of departments.

Dr Madlopha was also concerned about the non-compliance of municipalities. The Constitution was clear that national and provincial government needed to assist municipalities – what were the interventions of Treasury to assist the municipalities so that funds were not withheld in future? Was Treasury following the money to check on its uses before withholding it? She questioned the impact made by the ICDG and asked in which metro the grant was making the most notable impact. What was the lifespan of this particular grant? While not part of the presentation, she noted that there was a 25-year contract given to WBHO and Royal Bafokeng to operate the offices of Stats SA. The WBHO was one of the 15 companies fined by the Competition Commission – why was it still given government work? Why was the contract awarded for such a long period of time? She found this unacceptable given the opportunities for employment. She would accept if the answers were provided in writing as the matter did not form part of the presentation.

Mr A McLaughlin (DA) questioned if the variances under international financial relations was due to negative exchange rate fluctuations and, if so, if this would be addressed in the medium term budget because this seemed to occur regularly.  On the issue of partially achieved targets, he could understand targets partially achieved, for example in quarter one, because achievement of the target would be worked in the following quarters. If the discussion was on annual targets, he agreed that it was either achieved or not achieved. What targets set were not achieved in 2015/16? This was the kind of information the Committee required. Reference was made, in the highlights of performance n quarter one of 2016/17, to 90.4% of funded positions filled and he requested that the Department state the exact number value and the exact number value of posts then not filled. With the FMG, he did not understand what was meant by “a 3% under spend due to contractual commitments beyond the municipal financial year” in terms of underperformance. What did this 3% represent in terms of actual value? He agreed that the Committee needed to know both percentages and the actual figures as this gave Members a better picture of performance. He found the underperformance of the ICDG of only 79.3% spend of the allocation horrendous – what contributed to this low spend? The NDPG underperformance made reference to “unexpected discoveries” – what discovery was this? On the jobs fund, mention was made of a minimum wage but as far as he knew SA did not yet have a minimum wage. Were the figures quoted for the wages gross monthly salary? With the R1.7 billion disbursed for support – what kind of support was this? How had it supported the enterprises? He asked why there was not a more even geographic spread of projects across SA.

Mr Fuzile indicated that in future, the Committee would be given both figures and percentages. The allocations to municipalities were located in DORA but the information would also be presented to the Committee. With the grants, if municipalities did not ahead to their strategic plans they would be breaking the law and Treasury did not take the issue of withholding grants lightly – withholding the grant was actually one of the very last steps and it was required by Treasury in law to do that. If municipalities did not uphold plans and knew that Treasury would not withhold the grants, the system would fall apart. When all else failed, Treasury was obliged to withhold. The list of municipalities from which funds were withheld would be provided to the Committee. On the matter of partially achieved targets, he used the example of a building which had incomplete sections but the main structure was erect to demonstrate that work was done and money was spent although the final product was not complete. He would have preferred 100% of the target to be met however. The framework through which departments reported also recognised that at times things were partially completed.

The Chairperson interjected to note that the DG was talking buildings while the Committee was talking about targets that the Department itself set and committed to achieving with the funds available – buildings were a different discussion. Targets were achieved or not achieved according to the strategic and annual performance plans.

Mr Fuzile responded that he was not claiming that partial achievement was equal to full achievement but he understood the sentiments of the Committee. With the weather, this was part of a list of reasons for under-spending.  While some parts of SA were experiencing droughts, others were experiencing rains. With unexpected discoveries, this could be alluding to unstable soil structure when deciding to build, for example. In terms of assets not bought on time, the problems lied with suppliers who took long to deliver. The budget was also spread over the entire year so everything could not be procured within the first month. A range of technical support programmes were run for provinces and municipalities but sometimes they did not take the support – an example was the municipal infrastructure support agent. Money was tracked before the grants were withheld. The ICDG was for metros to build more integrated spaces in terms of residences, workplaces and to ensure that transport systems were well designed. The grant worked as an incentive for metros to build on these systems so that citizens relied more on public transport and spent less of their income on commuting between work and home. Like all other grants, the ICDG had conditions and if processes were not correctly carried out, the funds would be withheld. He recently met with the metros of Johannesburg and eThekwini which had really impressive plans for remaining the built environment. The issue with WBHO could be a sensitive one and the difficulty was that all the big companies were also involved in the cheating – to blacklist all of these companies would mean there would never be business in SA. Blacklisting could also not just be instituted by Treasury – the entity offended would have to make the blacklisting. To deny these companies not blacklisted could also mean that they would take one to court for this denial – there was no legal basis for them not to seek work in SA. On the 25 year contract, public-private partnerships (PPPs) allowed for upfront private investment while over the 25 year period, there were unitary payments (or instalments). There was merit in such a PPP and they were subject to a fairly robust process.

Mr Donaldson echoed that it was a series of payments over a substantial period of the life of the building. The benefit to government for such a long cession meant that at the end, the building came back to the state and penalties came into play if the building was not in a condition that was consistent with the contract. This provided for a considerable assurance for what condition the building should be in when it was handed in. Proper maintenance also needed to take place. This also meant that the contractor would not take shortcuts in the construction of the building because ultimately they would pay for that. This was the economic benefit of the PPPs although the contract was for a long period years. With the questions on the Jobs Fund, he explained the Fund worked on a call for proposals. Applications would be made and assessed in the first round. A selection would then be made for projects which looked promising and met the criteria specified in the request for proposals. Those applicants then put together a detailed business proposal for the investment committee to assess the full business case. Grant commitments spoke to what was contracted for implementation to begin. There were also disbursements from the state’s contribution. While there was not a national minimum wage, in many sectors there were bargaining council agreements or statutory wage levels that were set by the Department of Labour – when assessing projects, the committee would have to assess if it was compliant in this regard. He could not say whether the wages were full cost-to-company – the information received did come from implementing partners. Support to enterprise development covered a wide range of components – there were partnerships with financial institutions and mentorship and training etc. In terms of the geographic spread, the process worked through calls for submission and then applications – while the provincial spread was tracked, the Fund was reliant on applications coming in.

Mr Fuzile said that the construction of roads were also similar with long term contracts. People also had bonds on their houses for many years. Over expenditure in programme six was related to the exchange rate and unanticipated acquisition of shares from the African Development Bank. Savings would have to be made within the budget to cover this. Figures for the vacancy rate would be provided to the Committee but it was not a large number of people.

Ms S Shope-Sithole (ANC) noted that with the Jobs Fund, detailed business proposals were very expensive to create – did this mean poor rural people were not taking into account with the Jobs Fund? How would participation of rural youth be encouraged? On the issue of partial and complete achievement of targets, as an accountant previously, she was familiar that some programmes would be a work in progress. The Committee also set out targets for itself but with events like the election, some targets remained partially achieved so this was normal in business. She was comforted to hear that the Post Office could be trusted – she had some Rands in the Post Office and was scared to death to hear that there were challenges.

Mr Figg understood what the DG was saying with the holding of grant funds to municipalities but there was a responsibility in terms of the law as well on Treasury to assist provinces and municipalities to ensure that they comply. It was important to educate the municipalities on problems before just taking the money back - it was important to look at both sides of the coin. With the partial achievement of targets, it was important to remember that these were targets set by the Department and targets were either achieved or not. With the inclement weather, yes there were areas in drought and others areas where there was rain but last year on an oversight visit, the Committee saw that there was one contractor that could work in inclement weather while another contractor could not – how did that work? There were reasons as to why work could not be carried out but sometimes these reasons were questionable.

Mr Fuzile reiterated that stopping the funds to municipalities was the last resort of Treasury – everything in the capacity of the Department was done before restoring to stopping the funds as it was a very difficult thing to do. Rules could not be written if they were not invoked – when all else failed, rules needed to apply.

Ms Louw wanted to know if reference to permanent jobs created in terms of the Jobs Fund presentation applied to all provinces.  How many woman (in terms of actual figures) occupied these jobs and what was the racial demographic? She understood if the Department did not have this specific information at hand. With the technical skills and work readiness programme, was the number of trainees trained actually followed up on? Or were these people just trained and not followed up with in terms of job placement? She also wanted a list of the municipalities that did not have procurement and staff capacity. 

Mr Donaldson answered that the Jobs Fund was about learning, innovation and understanding what worked and what did not so it put a lot of emphasis on project partners to monitor and evaluate what they did and to make this information available to the Fund itself. Not everyone could be tracked like a project which trained 1 000 learners but work was being put into systematic assessing and evaluating.

Mr N Gcwabaza (ANC) was concerned about funds withheld from municipalities – on one level one wanted the municipalities to comply with prescripts of the law but on another level, one was worried about the delivery of service - this was a tricky balance. In terms of the Jobs Fund, he was worried that very little was said about persons with disabilities benefiting from the Fund – if this was the case, details should be made known to the Committee. Not much was also said about the new SMME cooperatives sector which needed to grow. With the NGOs partnered with, did the Department/Jobs Fund have a way of determining if they were doing exactly what they were supposed to do so that money was not given for the delivery of services and creation of jobs when it was in fact being used for other things. He raised this point because the National Lotteries Board had some very bad experiences in this regard about the bad work some of these NGOs were doing in the country. He wanted to further understand which public sector organisations were benefiting from the Jobs Fund. With partially achieved targets, he understood this to mean that some work was done with the budgeted funds. With the net loan debt as a percentage of GDP of 44.3% at the end of the fourth quarter of 2015/16, did it represent increased public expenditure or were there other exogenous circumstances that would have necessitated this growth of loan debt as a percentage of GDP?

Mr Fuzile responded that growth of loan debt was due to the exchange rate.

On the Jobs Fund, Mr Donaldson said quite a lot of effort was put into vetting organisations by looking at the books, audited statements, doing site visits and doing cross-checks in order to ensure all businesses and NGOs worked with were valid. It was always difficult to work out whether it was appropriate to financially support one particular business or a group of businesses rather than others but the Fund put emphasis on having partnerships with businesses which made sense from a public finance point of view. Complete new start ups with no record, assets or no proven capacity to deliver could not apply to the Fund – the Fund looked to work with intermediaries who themselves would work with smaller organisations rather than funding start-ups directly. Some of the best Jobs Funds projects were with organisations that had the capacity themselves to work with smaller organisations. Practically and administratively, the Jobs Fund itself could not take on dealing with all potential applicants but had to look for partners who themselves engaged with smaller organisations. These might be cooperatives, small enterprises or community organisations. Organisations with finances and a track record were the ones the Job Fund partnered with. In terms of public sector organisations, a number of municipalities put in applications along with SA National Parks, provincial departments and science councils so there were a number of public sector organisations, agencies and departments were taking advantage of the Jobs Fund. With people with disabilities, there were one or two projects specifically for work opportunities for people with disabilities.

Ms Madlopha said she did not hear an answer to her question on the impact of the ICDG. On the issue of partially achieved targets, the Committee needed to follow the money even if the project was not fully completed – this explained why departments accounted for their quarter by quarter performance otherwise Committees would just hear the annual performance.

Mr Fuzile replied that in the bigger scheme of things the ICDG was a small grant but it was meant to influence how the metros managed the bigger grants – plans were already beginning to show that incentives were working. Cities benefitting from this grant had beautiful plans in place for development.

The Chairperson felt that in conducting oversight it was also important for the Committee to consider work done by the Department holistically – if the targets were not achieved in the first quarter, the interpretation was that there would be under expenditure and this might impact progress in the next quarter and at the end of the financial year. In terms of the Public Finance Management Act (PFMA), under spending was an offence. She asked about programme five where R361.9 million was spent and thus over spending by 191% large due to the integrated financial management systems project – how would the Department avoid unauthorised and over expenditure at the end of the financial year? Seeing as this critical project had been ongoing since 2005, how far was the Department from completion and what still needed to be done? The Committee required a progress report on this. She wanted the internal audit to share the status of internal control within the Department and if the controls were adequate to ensure the Department attained its objectives. On the audit committee, she asked what aspects of risk management and governance were functioning effectively and which aspects required attention and may need to be improved and looked at? On the Jobs Fund, she noted the South African ICT companies ranked as world leaders in areas such as mobile software, electronic banking services, revenue management and others – how could more Jobs Funds projects be located in the ICT area? Some of the major projects Treasury were involved in to improve critical public finances included completing expenditure reviews and reviewing expenditure leases, modelling remuneration trends which was key to managing the wage bill, intensifying cost containment efforts and strengthening enforcement mechanisms across departments and public entities – feedback and progress should be provided on these critical projects.

Mr Fuzile said that a written submission would be provided to the Committee on these projects.

With the over spending on the integrated financial management systems project, Ms Kubheka explained the matter was beyond the control of Treasury – while the plan was to pay the amount over a period, cost benefit showed this would not make sense.

A representative from the Account-General’s Office in National Treasury added that this was a strategic project which had fallen behind but all effort was being put into meeting the target and expectations of the public service in this regard. At the end of 2013, Cabinet was presented with a memorandum on where the project was detailed and proposals to catch up on time and meet the original objectives. In so doing, Treasury indicated previous estimates would not be exceeded for completion by 2021. Currently, the Department was pushing hard to meet this end date, putting strategies in place to leverage off partners and engaging with the market.

The Chairperson said that National Treasury needed to lead by example. She hoped that precedence was not being set with this project because it was wrong in terms of compliance. Having been in the public service since 1981, she knew that one did not break the law or bend the rules in the hope that people understood. Procedure needed to be followed to the T so that precedence was not set moving forward. This was over expenditure and it could not be described otherwise – over and under expenditure was not allowed in terms of budgetary principles and it was something the Committee condemned.

Mr Fuzile agreed but clarified that Treasury was given a budget for 2016/17 and the financial year was not yet complete. Some things would be slowed down or stopped so that laws were not broken by the end of the financial year and that budgets were not exceeded. The end of the financial year was still very far away – when it was reached then Treasury could be judged. There was an option to buy things over a period of time and end up paying R500 million more or buying over a shorter period of time and paying less – it was a difficult decision to make and it was agonised over but there was no pressure exerted on the side of the service provider. Within reason, the rules did allow for funds to be moved around between programmes and this was why viraments existed. The points of the Chairperson were valid however looking toward the end of the financial year.

On the ICT projects, Mr Donaldson outlined the current round was an innovation round and there were a number of applications for consideration that were about taking advantage of ICT networks and new technologies in contributing to making it easier for businesses to link up with markets and rural organisations to link up with logistics and supply chain.

A representative from the internal audit committee responded to the question on controls by noting that Treasury was an environment where controls worked and there were many positives to be drawn from reviews done. On average from an internal point of view, between 60 and 65 audits were done that cut across various divisions within Treasury. It was found that more things worked than did not. Findings and recommendations for improvement were taken seriously to the extent that the DG made findings a point f discussion in executive meetings of Treasury. He was of the opinion that the control environment was sufficient and adequate which explained why the Department was, in many instances, able to achieve its objectives. The internal audit was quite satisfied with the control environment.

 Another representative from the internal audit committee added that with aspects of risk management and governance, the committee was very satisfied and very proud of the Department’s internal audit function and its ability to provide assurance that the control environment was functioning effectively. There was hardly any area that required improvement. The internal audit committee received support from management and the executive and there was a close working relationship which ensured internal audit was taken very seriously.  Any issues that required attention were brought to the committee speedily to take the necessary action. The internal audit environment conformed to the high standards expected of it and as a result there was due reliance even from the likes of the office of the Auditor-General of SA – this added to evidence that the internal audit was doing a good job. In terms of areas of improvement, the standard needed to be maintained to ensure the work conducted was quality and to push the bar to remain relevant as the environment changed in light of challenging times. With risk management, there was recognition that some attention was required to be paid to the risk management function – the function had worked very well over the past decade but there was some level of complacency which required some intervention. This was largely due to the well controlled Treasury environment which provided a level of comfort. There was an awakening to revisit and refocus the risk management function and to get top management fully involved to give more attention to the various entities Treasury oversaw to give sufficient attention to each of these entities as well. In summary, the environment of the internal audit brought comfort but there was some concern around the risk management but operations were being reshuffled – he was sure the Committee could be briefed on progress at a later date.

Mr Figg questioned the composition and qualifications of the audit committee.

The representative replied that the committee consisted of six members – the chair was a chartered accountant and he was also a chartered accountant. There was also an IT specialist so the composition was diverse and ensured the diverse operations of Treasury were overseen because it was a huge portfolio. The audit committee prized itself on the ability to maintain a close relationship with senior management and call on management, the DG included, to pay attention to areas of concern. Many of the concerns raised by Members today were also highlighted by internal audit. The committee was fully capable and capacitated.

Mr Fuzile added that the chairperson of the internal audit committee was a black, African woman.

The Chairperson said these were the requirements of the employment equity legislation that the Department was expected to meet. She requested that the Committee be provided in writing with specific information on the qualifications of the members of the internal audit committee.

The representative of the internal audit committee outlined that the chairperson of the committee was a chartered account with honours, a member had a Masters in Business Administration and was a certified internal government and professional auditor and had risk management assurance qualifications, he himself was a chartered accountant and had a Masters in Business leadership, another member also had Masters in Business Administration and Masters in Applied Science and Electrical Engineering and the newest member of the committee was an economist.

Ms Shope-Sithole asked for the latest report of the audit committee to be provided to the Committee. The composition of the committee was very impressive and she always paid attention to the reports of the internal audit.

The Chairperson remained concerned about the cutting off of funds to municipalities –government was about service delivery, value for money and balancing performance and compliance. She proposed an intervention to ensure that service delivery was achieved because this was about the people. She appealed to the Department to look at an alternative way of dealing with these grants to ensure the funds reached the people and that they benefitted from it. The main reason for the grant was to ensure people lived a better life. She asked if someone from the Department could be sent to monitor the use of the grants and craft a fast tracking plan to ensure the money reached the ground. Treasury keeping the money meant that there was no service delivery and there was under expenditure. This was not a solution because there were problems from all sides. The Committee would appreciate it if Treasury could think about this.

Ms Shope-Sithole supported these sentiments but she suggested Treasury first provide the Committee with the list of municipalities that were not performing for the Committee to call those municipalities with the MECs concerned. It was previously observed that National Treasury and Department of Cooperative Governance and Traditional Affairs (CoGTA) were serious about helping municipalities but the MECs did not seem to be coming to the party somehow. There was also a constitutional obligation for all upper spheres of government to assist the lower spheres – this was not the responsibility of Treasury and CoGTA alone. Municipalities in question, MECs concerned and mayors, if the municipality fell under a district, needed to come under one roof.

The Chairperson took note of this input.

Mr Fuzile said the list would be provided. He thanked the Committee for understanding that he had to be in two meetings today and for the robust engagement which enabled the Department to go back and improve the way things were done. Treasury would continue to effectively play the role it was entrusted with within the system. He did not take engagements with the Committee lightly and listened when spoken to.

On behalf of the Committee, the Chairperson thanked the Department for the informative briefing and adequate responses. She thanked Members for their robust engagement and interrogation of the briefings of the Department. Highlighting key issues emanating from the meeting, she said the Committee welcomed the many positive contributions the Department was making towards the NDP and attaining targets including leveraging much needed investment, meeting government’s liquidity requirements, ensuring all procurement plans were published on the new e-tender portal, training staff in the implementation of financial management reforms and others. She urged the Department to keep this up because the Committee was interested in seeing visible and bigger impacts to rise to greater heights. The Committee wanted to see significant improvement on the Jobs Fund with specific emphasis on tracking geographic spread and focus on more employment intensive and technology intensive sectors. The Committee was also concerned by some over and under expenditure in various programmes of the Department – it was important to ensure Treasury remained the role model within the broad public finance system. Compliance with laws and regulations was viewed seriously by the Committee to ensure radical socioeconomic transformation. Complementary oversight and best practice was for Parliament to work hand in hand with audit committees and the input was appreciated. Overall, the Committee viewed Treasury as a valued and critical partner and was in support of ensuring sustainable public and fiscal risk, sustainable employment, infrastructure development and ensuring economic integrated cities. Treasury needed to reconsider withholding grant funds but find an amicable way of ensuring that the grant reached the point of service delivery and the point of service delivery used the grant efficiently and effectively to meet the Treasury norm.

The meeting was adjourned.