Northern Cape & Limpopo 2016/17 expenditure: Provincial Treasury reports; Limpopo post intervention: National Treasury input

NCOP Finance

31 May 2017
Chairperson: Mr C de Beer (ANC, Northern Cape)
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Meeting Summary

After the National Treasury had presented an overview of the budget performance of South Africa’s provincial governments, the Northern Cape and Limpopo described the progress which their provinces had made in meeting their budget targets.

The main issue with Northern Cape concerned under-spending. The Health Department had under-spent by R116m, mainly due to delays in infrastructure projects, while health patient fees had been under-collected by R18.8m (36.2%), due to challenges in its billing systems. By contrast, the Education Department had overspent by R65.2m, as it had had to appoint additional temporary teachers to cope with an unexpected influx of new learners,

Members were concerned that money was not being spent while there was still so much that needed to be done in the province. They asked whether the delays in completing infrastructure projects were due to poor planning. A lot of money was being spent on compensating employees instead of school suppliers.

Limpopo showed improvements that impressed the House. Through economic growth, unemployment had gone down. The main issue with Limpopo was the organised crime occurring in Musina, where coal was being stolen and sold to China. The Committee was outraged by this, and suggested the army be deployed to put an end to it, since it was proving to be a difficult task for the police.

Both provinces were struggling in the fields of health and education, and ideas were provided to help overcome the challenges, with the Committee indicating it would watch them closely and monitor the implementation of the ideas.

Meeting report

The Chairperson said the objective of the meeting was to investigate good governance and sound management, and emphasised that departments must comply with the Constitution. The whole issue of accountability was about fighting corruption, and numerous meetings had been held to fight state capture. The issue of supply chain management (SCM) needed to be dealt with, and to ensure effective service delivery, feedback on the evaluation should be given to regional officers. Serious improvements had to be made on the effects of fiscal consolidation on the Department of Education, the provinces and public entities.

National Treasury on Provincial Budgets and Expenditure

Ms Ogalaletsang Gaarekwe, Chief Director: Budget Analysis, National Treasury, said that Treasury reviewed the provincial budgets to ensure that key areas such as health and education were adequately funded and prioritised. Conditional grants were important to look at in order to determine the funds that were transferred to other provinces. National Treasury provided training for provincial officials.

In Limpopo, Treasury was concerned about the departments of Cooperative Governance and Traditional Affairs (COGTA) and Human Settlements, because it seemed like there had been a lot of under-spending. The province had lost funds when projects were stopped midway and there had been a reallocation of funds. This might have affected service delivery, and it had been some of the reallocated funds that had been left unspent.

Limpopo had spent R57.8bn (97.8%) of its adjusted budget of R59bn. The main contributors to the under-spending had been a reduction in personnel and delays in filling vacancies. The Education Department’s staff complement had dropped from 61 667 to 56 529, resulting in a huge under-spending of R373.8m in compensation of employees. In the Health Department, the number of employees had dropped from 36 419 to 35 524, reducing spending by R252m. Another factor influencing under-spending had been delays in processing payments due to industrial action by employees.

The Northern Cape spent R15.2bn (98.5%) of its R15.4bn budget. The Health Department under-spent by R116m, mainly due to delays in infrastructure projects, while health patient fees were under-collected by R18.8m (36.2%), due to challenges in its billing systems. By contrast, the Education Department overspent by R65.2m, as it had had to appoint additional temporary teachers to cope with an unexpected influx of new learners, and Treasury wondered if this had affected the delivery of all the books and stationery.

The Chairperson interrupted, and urged Members to take note of that. 

Ms Gaarekwe said National Treasury was very worried about the Health Department. There were challenges with infrastructure and delivery. The Department had a grant and was not doing well with it. There was further concern on how the Agriculture Department had under-spent despite there being a drought. This raised concern on how the drought was being dealt with.

The Chairperson reassured Treasury that the whole programme to combat the drought had come very late in the Northern Cape because there had been “hiccups” in the implementation.

Ms Gaarekwe said infrastructure delivery was a problem. The issue of under-spending was a result of delays. There was deep concern about management within the Departments. For the past six years, there had been leadership challenges and instability. There was further cause for concern because of the way in which departments regulated expenditure, as so much was irregular. Intervention was needed in these departments. A reason attributed to the over-spending in education was an increase in learners, and the Department had also lost a lot of people through resignation and retirement. There were problems with health infrastructure, and rollovers had been requested. Social Development had also under-spent, and National Treasury attributed this to delays in the construction of a substance abuse treatment centre as a result of the litigation on the project.

Key Risks: Limpopo

The province had tabled a surplus budget over the 2017 medium term expenditure framework (MTEF) which was reserved for provincial priorities and unauthorized expenditure that was approved with funding. In a nutshell, the overall change to baselines reflected an increase over the 2017 MTEF period due to the increasing transfers from national government.

The key risks facing Limpopo were:

  • The wage bill of the Province was still high, and the efforts to manage the recruitment process were handled by the Office of the Premier (OTP) and Provincial Treasury in prioritizing front line services. However, a clearly defined strategy was also needed to deal with the current incumbents in the public sector, and not only new entrants.
  • Province needed to re-look at the health budget baseline, considering the continuous bail out during adjustment estimates and additions over the MTEF.
  • The Treasury must to continue to strengthen itself to prevent relapse and ensure vigorous support for the effective implementation of S18 at Education.
  • The expenditure on infrastructure was low, and considering that it was mostly grant funded, there was a risk of loss of funds and a further reduction in the following year’s allocation due to the low ability to spend. Strategies were needed that would lead to an improvement in infrastructure planning and delivery.

Key Risks: Northern Cape

  • The province started 2017/18 with a bank overdraft of R167 million which might affect the implementation 2017/18 budget. Accumulated irregular expenditure posed a risk to the provincial envelope.
  • Health and Education were likely to overspend their compensation of employees’ budget in 2017/18, given the current overspending and the low growth.
  • Operationalisation of new health facilities would remain a challenge in the province over the MTEF, and accruals continued to pose a high risk to goods and services within the department. The provincial executive committee (EXCO) has placed the Department under section 18 (2) (g) of the Public Finance Management Act (PFMA).
  • The main provincial own revenue items  -- casino taxes, liquor licences and health patients’ fees – had been under-collected against the projected revenue targets for 2016/17,  and this posed a risk of under-collection over the MTEF.

The Chairperson said that he hoped Members had taken down notes. The Northern Cape MEC was invited to make her presentation, and urged to focus on the major issues -- employment and economic growth.

Northern Cape Provincial Government presentation

Ms Gail Parker, MEC, Economic Development, Finance and Treasury, Northern Cape said the province had experienced R1 billion in budget cuts over the years, and that had had a major impact on how services were delivered. She urged that the province needed to be given a chance to implement the health interventions they hade planned. The Premier’s office was leading growth and development, and by the end of the financial year the province would have their growth potential outlined.

The Chairperson suggested there should be talks about fiscal space. The Northern Cape should collaborate with the Free State’s committee on finance in regard to allocations to rural provinces.

Mr Thami Mabija, Northern Cape Provincial Treasury, said some departments were not performing well in spending their conditional grants. In agriculture, under-spending was a result of having to verify the work that was being done. In health, it was due to the Department requiring the Department of Public Works to implementing the work. The mental health hospital being built was anticipated to be ready by December. Human Settlements was under-spending because of delays in the registration of title deeds. The deeds office was very slow and was closed on most days. In addition to this, in the Social Development Department, there was litigation on a project. When it came to spending on compensation of employees, the Department of Education had had to appoint more people because the number of learners in the province had increased. All books had been delivered to school children, however.

In the area of sports, arts and culture, there had been under-spending on libraries. This was attributed to delays in the construction of these facilities. The money remained unspent, waiting for projects to commence. Another factor with the library issue was that there were a lot of changes in their design, which had contributed to the delay.

Moving on to infrastructure, he said the province had spent 91% of the budget, with under-spending of R236 million. The Northern Cape was handling numerous projects and they were all in different stages. There had been a slight improvement with accruals.

There had been additional unauthorised expenditure involving the Departments of Education and Health. The province was not doing well with irregular expenditure, which was currently sitting at R10 billion. The biggest transgression was in non-compliance by not finishing a project that had been started. Every time the departments were checked up on, they said they could not conclude the investigations. There was engagement with National Treasury on this matter.

Limpopo Provincial Government Presentation

Mr Rob Tooley, MEC: Finance, Limpopo Provincial Government, said the money the province allocated to children at schools should be more than that allocated to Johannesburg children. The province was currently growing its economy at 3% to create employment. Mining and drought had had an impact on the agricultural sector. Mookgophong still had a drought, and this was proving expensive for the municipality. The province was currently in talks with an investment company from China that would invest R4 billion in the province. The busiest port in Africa was Musina, and a lot of coal had been uncovered in the Musina area, although those conscious of global warming were concerned about that. There was an illegal miners’ challenge in Sekhukhune, as there was a lot of organised crime involving coal going from Musina to China. Unemployment was quite seasonal, as it went up and down. There was R1.6bn budgeted to be collected from 27 municipalities, but eight of them were bankrupt.

The Chairperson said the Committee might be able to help the province in respect of recovering money.

Mr Tooley expressed his appreciation and continued.

In terms of the performance of the province, there had been R3m over-spending on the compensation of employees overspending. The goods and services budget had not been fully spent in education because there had been a serious strike. The province owed the Department of Health R109m because of the Cuban Doctor Programme. The province wanted to build an academic hospital, and the cost of medicines had gone up because of the exchange rate changes. In discussion with the Public Investment Corporation (PIC) about the building of the hospital, it was felt it should be linked to the University of Limpopo.

The province was trying to avoid employing people just because they needed to employ people, and the emphasis was rather on the skills that people could offer. The province needed to employ teachers because it wanted to create a teaching hospital. Radical change within the procurement system was needed. 203 vendors had already registered and this would help the province significantly with its supply chain management. The province had a problem with numerous departments when it came to payments for capital assets. An infrastructure hub had been established, and there had been a vast improvement with Cooperative Governance, Human Settlements and Traditional Affairs (COGHSTA).

Mr Gavin Pratt, Head of Department: Limpopo Provincial Treasury, said the province had stringent cash control measures and knew exactly what cash went where. The biggest challenge for the province was the Department of Health. The Limpopo Provincial Government Report highlighted how well the province had done on revenue. Revenue collection had been growing, testament to the province’s cash flow management. The province clarified that they were not in the business of hoarding interest, but rather delivering services.

Mr Tooley said the province had a lot of pressures. Millions had been spent last year on transport and security. Emphasis had been put on the need for security at schools, otherwise they got burnt down.

The Chairperson thanked the provinces and the Treasury. He emphasised that it was crucial that executive members understood what fiscal consolidation meant. The implication of fiscal consolidation for departments had to be noted. Every deployee had to visit their school three or more times a year and report to the MEC. Following these presentations, it would be wise to look for donor funding outside of the borders of this country.

Discussion

Mr O Terblanche (DA, Western Cape), asked if Treasury was happy with Limpopo. The fact that the overspending in the Northern Cape was a result of overspending on employee compensation and not school supplies was very concerning. There were numerous delays in building hospitals in the Northern Cape, and a sufficient reason for these delays had not been provided. The fact that the community had been involved in the building of the library only recently was worrisome. If the public had been involved in the process sooner, they would have agreed on the size of the library from the beginning and this would have curbed delays in the long run. There were still a lot awaiting completion, and this did not reconcile with the figures that had been presented, and the unauthorised expenditure did not make sense. Some of the budget was going towards paying for consultants, and Members would like to know who these consultants were and what they did. In observing Limpopo, it was quite clear that there had been an improvement. The organised crime happening in Musina needed to be addressed, and the army should be brought in if need be. The arrangement South Africa had with Cuba seems like a hire of labour to the detriment of South African skills. It would be of more benefit to South Africa if the investment were made in its own people to be skilled and able to deliver services to their communities.

Mr L Nzimande (ANC, KwaZulu-Natal) said with regard to Limpopo, there was so much commendable enthusiasm and passion for the departments that it would benefit Members to know if these departments were being micro-managed. More details needed to be provided on the under-spending of grants for agriculture in the Northern Cape. There were receipts that had not been submitted, and it seemed like these receipts were causing under-spending. Treasury had emphasised how provinces were receiving money when they were not ready. If the operation continued this way, then the problems that provinces had would never be solved. It did not make sense how there could be under-spending on Learning and Teaching Support Material (LTSM) when there was a special school in Sol Plaatje that had no Braille machines. That could not be justified, because there was money available.

Mr T Motlashuping (ANC, North West) said issues over textbooks always arose in Limpopo. A further issue was the crime,  and it was quite concerning that China accepted stolen goods from South Africa despite SA being a member of BRICS. South Africa did not take stolen goods from China so it did not make sense why they should be unfaithful to us. In terms of project management, the Northern Cape needed to provide a start and a finish. There had to be a specific date confirming when the hospital would be opened. The under-spending could be a sign of lack of planning. Were consultants being appointed because the government did not have the capacity? The issue of irregular, fruitless and unauthorised expenditure was concerning, and maybe the provinces needed to embark on a consequence management strategy.

Mr S Mohai (ANC, Free State) asked Limpopo about their fiscal risks and their strategy to deal with the key areas. The basic provision of health was under threat, and Treasury needed the necessary institutional capacity to deal with this.  When a country could not secure and allocate its resources there was a problem, and South Africa’s budget was reliant on revenue collection.

Northern Cape’s response

Ms Parker said due to cash flow problems, invoices had not been paid on time. The issue of the library was also a concern to the province, and the sports department had assured the province that they would fix the problem. When it came to the issue of consultants, it appeared that when the Department had been requested to conduct investigations into financial irregularities, an independent person had been required so that the necessary culprits could be identified. There had been a report on public entities, but it had not been received yet. Investigations had been concluded in the last financial year.

Mr Mabija said the province was looking at combining two entities -- gambling and liquor. It was not a question of having capacity, but an issue of finalising matters. The province had been made aware only yesterday about a municipality with outstanding salaries, and had made a quick intervention to make sure the salaries were paid. There had been facilitation to ensure that the payment went through.

Mr Vuyi Gumbo, HOD: Northern Cape Provincial Treasury, said that teams were being established to specialise in supply chain management for health.

The Chairperson asked how many HODs there were in each province, and enquired again on the specific date for the completion of the mental hospital.

Mr Gumbo confessed that he was trying to avoid the question about the mental hospital, because the project had been ongoing for 12 years. There had been hiccups and the province had intervened many times. The mental hospital project would be finished in December. The equitable share of the province did not allow such an expansion, as nurses and specialists were needed.

The Chairperson said the crucial point was monitoring and evaluation. Those were basic management principles.

Limpopo’s response

Mr Tooley said Limpopo did have an issue of irregular expenditure. The province did not micro manage, but could get reports when they were supposed to. The whole issue of organised crime was matter of national competence, and concern had been raised about this. When it came to the Cuban doctors’ dilemma, the province had health workers and the intention was to absorb them into clinics. A huge risk was employing revenue funds, because there was a big difference between public and private hospitals. The province had consolidated numerous entities, but it seemed like they were not adding value. There was an issue with cross-border controls, because everyone who lived in Zimbabwe came to Musina to have a baby. Most received grants, and this had huge impact on the province’s budget.

The Chairperson said this was also common in the Free State, with people from Lesotho. 

Mr Tooley said when it came to the deal that South Africa had with Cuba, President Mandela and Fidel Castro had signed the deal together. Maybe it needed to be considered again, but for now the bill had to be paid.

Ms Theresa Ngqaleni, Head: Intergovernmental Relations, National Treasury, confirmed that Treasury was happy with the progress that Limpopo was making or had made. Part of the collapse of their finances had been due to a collapse in its treasury, but that would now be avoided because it was functioning. Sometimes the issue was about poor leadership. Invoices in Limpopo were accumulating at a rapid rate, and once who was getting paid was investigated, money was cut down. The accruals were suspicious. Something needed to be done to look at the underlying issues within the health departments. Most municipalities misspent money because they did not maximise on their potential.

The Chairperson said that unpopular decisions would have to be made. Provinces were invited to meetings to see where NCOP could assist, not to fight them. The aim was to learn from each other.. 

PFMA Section 18 Intervention: Progress at Limpopo Department of Education

Mr Tooley said the crucial points of his presentation were on page 6 and 7, where the provincial economic growth was considered.

Ms Ngqaleni referred to the Cabinet resolution of December 2016, and said the big issues in the Department of Education were around disciplinary action and ensuring there was leadership. There had been 16 directives, and the Department had completed ten of those, and that covered the audit issues. For a way forward, the Department would prepare reports that would advise Treasury and the ministers with regard to education.

Ms N Adriaanse, Deputy Director General: Institution Support Services,  Limpopo Provincial Government, said there were detailed reports that were still outstanding.

The Chairperson enquired why it seemed like the support plan would start only from May. If every education circuit in Limpopo had a circuit manager, it would be easier to notice discrepancies and stay on top of things. 

Ms T Motara (ANC, Gauteng) said the province should be commended for what they had been through.

Ms Adriaanse responded on the issue of circuit managers, and said the province still had circuits that did not have managers. The MEC was engaging with the community and had agreed with the Auditor-General to first allow the audit process to be finalised.

Mr Ishmael Kgetjepem Limpopo MEC for Educationm said the merging of schools was a moving target. Critical stakeholders could be found in traditional leaders, and that should be dealt with. Many poor schools were in those areas. Dealing with schools was a painfully slow process because many things were dependent on stakeholders.

The Chairperson said progress made from 2011 needed to be appreciated. To compare this meeting to the first one that the Committee had had, one could see that it was two separate worlds. The first meeting had been a very difficult one. The Chairperson thanked everyone for their presence.

The meeting was adjourned.

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