Free State 2016/17 expenditure: Provincial Treasury report

NCOP Finance

07 June 2017
Chairperson: Mr C De Beer (ANC, Northern Cape)
Share this page:

Meeting Summary

The National Treasury briefed the Committee on provincial budgets and expenditure for the fourth quarter, 2016/17. There was overspending on compensation of employees (CoE), and underspending on goods and services and infrastructure related conditional grants in the social sector, especially in education and social development. The Department of Education overspent on CoE and underspent on goods and services. There were infrastructure delivery challenges in the Department of Education (DoE). The Department of Health (DoH) underspent on CoE. There were high vacancy rates. Public entities were being rationalised for efficiency. For provincial own revenue generation, revenue enhancement projects were implemented. The 2017/18 public service salary increases put pressure on the provincial budget.

The Free State Provincial Treasury briefed the Committee on preliminary expenditure for the 2016/17 financial year. The provincial fiscal framework was under pressure due to relentless provincial needs. Preliminary spending for the province came to 99.5 percent. 97.2 percent of adjusted revenue estimates were collected. Preliminary infrastructure spending amounted to 88.7 percent of the allocated budget. There was a decline in accruals and fruitless and wasteful expenditure. The Provincial Intergovernmental Debt Steering Committee was established to deal with debt between spheres of government. A model for disaster management had to be considered. Measures for drought relief had to be considered, as distinct from natural disasters like floods. The conditional grant framework had to be evaluated, with regard to direct and indirect grant trends. A funding model for the local government sphere would be developed, for financially unviable municipalities.

In discussion, members had remarks and questions about water shortages; vacancies in clinics; section 18 administration issues; IT goods and services; unfair and non-competitive procurement processes; submission of Annual Reports; delays with hospital construction; overspending on personnel and underspending on goods and services and infrastructure; incompitence of Department of health officials; intergovernmental relationships; signing of legislation; customs union issues; initiatives to involve CEOs; solar and water harvesting; the use of the anti-corruption task team; the expenditure ceiling, and drought relief distribution issues.

Meeting report

Introduction by the Chairperson
The Chairperson welcomed the Free State MEC for Finance, who had made an exceptional effort to be there, and the National Treasury. The day’s meeting would be a continuation of meetings with provincial treasuries. The Select Committee would compile a report to be submitted to the National Council of Provinces (NCOP) and the Finance Minister, prior to the Budget Council. It was an important oversight meeting, related to the fiscal position of SA, as reflected in the nine provinces. Fiscal oversight of the provinces had to be in line with strategic goals and the Public Finances management Act (PFMA). Sections 81 to 86 of the PFMA related to consequence management. The question was whether finances were in good standing, and whether the provincial treasuries were complying with the PFMA and the Constitution. The National Treasury (NT) presentation captured what was submitted by the Provincial Treasury. Figures were sent from the provinces to the NT. There were some discrepancies. The Free State figures showed good revenue collection, which sent a positive message to North West and Mpumalanga. Provinces could learn from each other. With regard to accruals, unauthorised and fruitless and wasteful expenditure and irregular expenditure, the question was what what was being done about officials who did not comply with the law. An apology was received from Mr Essack. Mr Mohai and other Members were in other meetings. The Auditor-General ( AG) was also present. He invited the NT to proceed with its presentation.

National Treasury: Provincial budgets and expenditure, fourth quarter 2016/17
The briefing was presented by Ms Ogalaletseng Gaarekwe, Intergovernmental Relations, National Treasury. Provincial spending was characterised by overspending on compensation of employees and underspending on goods and services and infrastructure related conditional grants in the social sector, specifically education and social development. Personnel overspending occurred mainly in Education, the office of the premier and the Department of Police, Roads and Transport. The Department of Education (DoE) overspent on compensation of employees (CoE), and underspent on goods and services. Infrastructure delivery was a serious challenge in the DoE. Expenditure challenges were largely related to the cash shortage in the Department. The Department of health (DoH) underspent on the compensation of employees and had a high vacancy rate, especially on critical posts. Cost cutting measures included centralising PERSAL appointments with the Provincial Treasury, with only critical positions being filled. Public entities were rationalised to gain efficiency. To promote own revenue generation, various revenue enhancement projects were implemented and funded through earmarked revenue enhancement allocations to various departments. Own revenue was expected to grow moderately by 5.4 percent year on year, and 5.5 percent over the Medium Term Expenditure Framework (MTEF). The 2017/18 public service salary increases would continue to put pressures on the budget, notwithstanding measures imposed by the province to contain CoE. Funding could be shifted from provincial priorities to fund social sector budget shortfalls.

Comment by the Chairperson
The Chairperson commented that the Department of Health was under section 18 of the PFMA. When the Committee visited Rouxville and Zastron in the Southern Free State, there was a submission by the Department of Health. He had to sensitise a director of that Department to the fact that Health was under section 18, and was controlled by the National Treasury. He had to check with the Treasury before making any announcements. He welcomed the Free State Finance MEC, and invited her to proceed with the Presentation by the Provincial Treasury.

Free State Provincial Treasury: 2016/17 Provincial preliminary revenue and expenditure outcome
The briefing was presented by Ms Elsabe Rockman, Finance MEC, and Mr Godfrey Mahlatsi, Provincial Treasury HOD. The provincial fiscal framework remained under pressure due to relentless provincial needs. The provincial preliminary spending amounted to R30. 920 billion, or 99.5 percent of the budget in 2016/17. Underexpenditure amounted to R167.409 million, or 0.5 percent of the budget. The province collected R1.042 billion, or 97.2 percent of adjusted revenue estimates. There was overexpenditure on compensation by the Department of education (DoE). Provincial preliminary spending on infrastructure amounted to R2.907 billion, or 88.7 percent of the allocated budget. The province recorded a decline in accruals and fruitless and wasteful expenditure. The Provincial Intergovernmental Debt Steering Committee was established to deal with debt between spheres of government. The province implemented additional cost containment measures in the Department of Health (DoH). There was a need to further consider a model for disaster funding, and to consider measures aimed at drought relief as opposed to other natural disasters. There was substantial scope for improvement of intergovernmental relations when dealing with appropriations and adjustment appropriations. Conditional grant frameworks had to be evaluated with regard to direct and indirect grant trends. There had to be a funding model for the local government sphere, in relation to financially unviable municipalities.

The Chairperson thanked the MEC and the HOD for a detailed presentation, and asked Members for remarks and questions.

Mr T Motlashuping (ANC, North West) commented that his questions were related to the enhancement of good governance. The NCOP had visited Trompsburg in the Free State some weeks before. The focus was on health issues. The Department was under section 18, and was run by the NT. The water board that served there was owed millions. The municipality was trying to repay the water board. People were suffering from the lack of water. Even where Members were boarded, it was impossible to take a bath. The Equitable Share) ES was supposed to be for the benefit of poor people, to supply them with water and electricity. But the health of school children was suffering. There were concerns about the Department of Health. There were vacancies in the clinics. Although there were no medicine shortages, there were shortages of ambulances and staff. The Department of Health was saying that the NT had to fill vacancies. There were general elections in 2014 that ushered in a new administration. His concern was whether a department was perpetually left under administration, even if there was a new Parliament. He asked if that was legal. An advocate was approached, who said that it was irregular to keep a department under administration. The Free State was using Implementing Agents (IAs) to deliver projects. He asked if that was done to avoid having to account in terms of the PFMA, as it was no longer under publicly funded administration. The free State had problems regarding IT goods and services. He asked what was happening in that regard. The supply chain management system in the Free State was non-competitive. There were unfair procurement processes and bad contract management. For example, there was a company that was employed to collect waste at a clinic that had not done so for two months, and was still being paid. There were allegations that contracts were being awarded to close family members. He referred to financial allocations for Education. The Department had accruals amounting to R380 million. It was R217 million in 2015/16. The R641 million bank overdraft had to be explained. The NT had to exdplain if all departments in the Free State had submitted Annual Reports, and if not, why not.

Mr Motlashuping continued that Albert Nzula hospital would open on 15 June. The hospital had been there for four years. A study by the NT revealed that a road could not be built off the freeway. It was known from the beginning. It had caused R100 million inflation. The hospital could not be opened for four years. It was known that there was water scarcity. Sewage was done during construction. With regard to vacancies, only critical posts were filled. The hospital opened in phases. People were needed for laundry and gneral work. There had to be doctors and nurses. He asked if such posts were considered critical.

Ms B Mathebula (EFF, Limpopo) noted that the Department of health had stated that two hospitals were to be opened. She asked when the other one would open. It was stated that police vehicles were repaired in the Eastern Cape. She asked that more information about that be supplied, so that the Minister could be approached. The same applied to truck companies brought in from Mpumalanga, and agricultural issues.

Mr O Terblanche (DA, Western Cape) jested that he had travelled through the Free State on the previous Saturday. As he did not wish to increase the income of that province, he put his car on speed control. (The remark produced general laughter). With reference to the NT presentation, he commented that the same old issues prevailed. There was overspending on personnel, and underspendfing on goods and services and infrastructure. The NT was saying that overspending in other areas caused funds to be taken from infrastructure. Captial budgets were usually ring-fenced. He asked for clarity on that. When Zastron in the Free State was visited, it turned out that one needed a chopper to negotiate the street, as it was in such bad condition. When the Committee visited health facilities, it was accompanied by a delegation from the department of health. The officials were not on top of their game. They could not answer questions nor come up with responses. The Department was under section 18 and it was clear that it was not going to get out of that easily. There was a clinic under construction and no-one knew who the contractor was. Seven people from Public Works and Infrastructure were called in, and they could not say who it was. The project had been going for 10 years. Locals were saying that bricks were being carted from one side of the site to the other, on a daily basis. Things had to get going. Service in the clinics was good, but there were staff shortages. Capital works was a problem. There were government owned ambulances, but there was also a contract with Buthelezi, which led to confusion. It seemed that more expensive cases were being dealt with by Buthelezi. Patients were being left behind at accident scenes, and one patient died. It was stated that there was a plan to close down farm schools. He asked where pupilds would go to. There was a risk that closing down would leave pupils uncatered for. He referred to the servicing of police vehicles in the Eastern Cape. He himself had spent 40 years in the police. The problem could be rectified.

Mr L Nzimande (ANC, KZN) remarked that the Fiance Select Committee was not a supercommittee. It could not compensate for wrongdoing or poor judgement. It was there to facilitate solutions and could not force the changing of decisions in terms of the law. People were lamenting to the Committee when they were mandated to cope with challenges. The Committee was a political authority that worked within a collective. It would not do to lament what was not happening. The question was what effective processes were in place to deal with challenges. Intergovernmental relations was a concurrent competence, not a national one. Everyone down the line was bound. The MEC referred to a bill that was not signed. He asked which bill it was, and what had caused the delay. The legislature had to resolve the siisue. The issue was suggested by the administration but had to be informed by policy. He asked what engagement there had been with the political sponsor. He asked if the MEC participated in the Ministers and MECs Council (MinMEC), and whether there were meetings. Cooperative Governance and Traditional Affairs (CoGTA) attended MinMEC. Leadership in the Executive Committee (EXCO) had to attend meetings. He asked who was responsible for capacity under section 18, that Mr Motlashuping and Mr Terblanche had referred to. He asked whether memoranda set out were solely based on the fiscal position of the department, or also on lack of performance. There seemed to be no concern with capacity or the ability to build it. The Department of health had no capacity, and hence was unable to get out of the section 18. The NT was only concerned with the financial position. The question was whether the department would revert to the same position if released from section 18. R50 billion was being paid to the customs union. It included Lesotho, but it was not known what the actual payment agreement was. He asked why there had been no enforcement for three years. He asked if Lesotho had been billed, as it was not paying. It could be asked why sheriffs were not sent in. The matter was supposed to be guided by mandates and prescripts. He asked about new MEC and HOD appointments in departments. He defined new appointments as those who had been in office for less than two years. He asked about work with modalities of contracts with universities, and when such work would commence. He asked how long it would take to sort out contracts. He referred to underspending on infrastructure, investigations and suspensions. Solutions had to be known. Parliament could not provide solutions. It was not in order to say to the media that a problem was with the Finance Select Committee in Cape Town. The Committee could only recommend. Duties had to be performed and executed. Parliament was not mandated to resolve issues.

The Chairperson asked Mr Nzimande to wrap up, as 30 questions had already been posed.

Mr Nzimande agreed to ask no further questions.

The Chairperson remarked that if one looked at the picture on a national level, the Finance Minister was engaging with the CEOs of companies. He asked if there were such initiatives in the Free State. It had to be taken down to grassroots level. He asked if use was made of the anti-corruption task team. The Committee had focused on energy in its visit to Zastron, Rouxville and Smithfield. Clinics there did not employ solar energy, and there was abundant sunshine in the area. It was observed that there were water shortages, but no-one was harvesting rainwater. Gutters were in a state of bad repair. Yet people complained that there was no water. With regard to drought relief, it was suggested that the Free State Provincial Treasury link up with the Agriculture HOD in the Northern Cape. A submission was made to the national Department of Agriculture about drought relief. He himself brought a presentation about that to the Appropriations Select Committee when the Division of Revenue Bill (DORB) was dealt with. Ms Wendy Fanoe of the NT engaged with the National Department of Agriculture, which approved the submission. Previously officials in Pretoria had blocked the process. The last drought relief was delivered in May 2017, yet money was approved by Parliament in November 2016. He had met with the Chairperson of the Agriculture Select Committee on that morning. The whole process of distribution was being reviewed.

Ms Rockman replied to questions about governance, that the water scarcity at Gariep was not only due to drought. It was generally a dry area. Historically there was a situation where water was taken from the Gariep dam, but one had to ask why the distribution network was such that water was not distributed into Gariep itself. The matter was raised with the Department of Water and Sanitation, but the matter would not be resolved overnight. There were cash challenges.

The Chairperson remarked that water was pumped into the Kalahari over 250 kilometres from the Vaal river, through a pipeline. He asked why the same could not be done in the FS. It was the same principle and the same government. The matter would be taken through the NCOP.

Ms Rockman continued that there were financial issues in Kopanong local municipality, that were similar to other municipalities in the Northern Cape. There were many people, huge distances and the revenue base was very small. The NT was asked to look into tariff increases. Bloemwater and Kopanong both had to deal with tariff increases, but the tariffs were not the same. The Free State could not deal with tariff increases. The Department of Water and Sanitation had to deal with it, and had to facilitate discussions between Bloemwater and Kopanong. There was enormous strain on Bloemwater to continue providing water services. Work was still being done on the restriction of water scale and model used there. The rear debt of Kopanong was significant. The Free State could not assist them to pay off the debt. It was a bigger problem which needed other interventions. With regard to filling of posts in the Department of Health, she noted that the Department blamed the Treasury when it suited them. The Treasury could not identify for them which posts were needed. The Department had to follow processes for recruitment and appointment, especially when operational posts like doctors or nurses had to be filled. Even the position of a porter could be a critical post, as porters had to move people into place for surgery, for instance. The Department had to prioritise which posts had to be filled. It was hard to attract skills to places like Rouxville, Frankfort or Cornelia. Yet Rouxville won an award for the best hospital manager in SA, two years before. Regarding the intervention itself, there was consultation with state law advisers, in terms of who had to do what, and time frames. The Treasury did not agree that the section 18 had to be terminated automatically between administrations. The procurement of IT goods and services was a State Information Technology Agency ( SITA) competency. It took too long and it was too expensive. A laptop would cost R15000 when obtained through SITA, whilst it could be bought for R8000 elsewhere. The Treasury was not lamenting about that, it was simply a fact.

Ms Rockman replied to Mr Motlashuping about an uncompetitive procurement system in the department of Health. In 2015/16 the AG found 41 incidences where close family members were involved. Of those, only 27 were related to actual transactions, and were in the operational environment as medical officers and the like.  Only one official was in the state accounting environment. The Treasury shared a list of incidences with the AG every year. If findings were real, the question asked of departments was whether there was actual or perceived conflict of interest. It could justly be asked if a cleaner could have any influence on the procurement process. The Treasury would look into what actions were taken by the DoH about the 27 transactions. Annual reports were not submitted by Agriculture, Rural Development, DESTEA, Human Settlements, Sports, and Arts and Culture. The matter was part of a dispute between the Treasury and the AG, and was in different stages of being addressed.  Closing down of farm schools was not a new project. Many of those closed down were not yet registered as officially closed. The Department had not done the paperwork. Undersized schools were identified. There was investment in school hostels, so that learners could be accommodated.   Concerning the raising of the provincial socio-economic profile, she said that the issues raised were related to national departments entering their own supply chain processes. Regarding the matter of vehicles taken to the Eastern Cape to be repaired, she said that it was a national department procurement process. The FS could do nothing about that. She answered Mr Nzimande that it was the Provincial Treasury that was refusing to pass certain legislation. It was not a lament. The Treasury would not pass the legislation until processes were corrected.The Lesotho customs issue was an intercountry agreement. Neither DIRCO, nor the NT or the Department of Health was helping to resolve challenges. It was not only a Free State problem. Gauteng was differently affected with its neighbouring countries. Lesotho had cash flow problems and could not pay. There was ongoing engagement, the challenge was that it was a national competency but provinces were carrying the burden. Patients coming in from Lesotho could not be turned away. The Joint staff establishment with Free State University was being reviewed. It was not a new issue. There were different expectations from both sides. The University was claimed from on a regular basis, and it disputed certain amounts. The University would at times not be comfortable with payment and would prefer offsetting other debt.  It affected anticipated revenue. She replied to Mr Nzimande that the Finance Select Committee was not being asked to do anything about that. All provinces had the problem, especially with regard to medical schools. In terms of the joint staff establishment arrangement, the University claimed autonomy for recruitment procedures. The DoH might feel if the burden of payment was on them, they wanted a say. Within the context, it had an effect on anticipated revenue.

Ms Rockman ansewered the Chairperson about inititiatives to involve CEOs of companies. The CEO Initiative Council was led by the office of the Premier, and DESTEA. A black business council was established, and an SMME forum. There were recent meetings with specific industry sectors, like motor mechanics, catering and tourism. It was not restricted to big forum or association meetings. There was engagement with the challenges of people in the industry. Employment of the anti-corruption task team was not according to a formal arrangement. When Treasury investigations were referred for further action there was a direct relation with the National Prosecuting Authority (NPA). The investigation into Education was done by a service provider, not by the anti-corruption task team. Regarding the harvesting of energy and water, the Department of Public Works and Infrastructure was instructed to make that a standard provision in their building specifications. A solar park was developed close to Bethulie. Harvesting of sunlight was a money spinner. It was not a short term project.

Mr Mahlatsi elaborated on appointments in the Department of Health. The national Department was assisted in the matter of vacancies. There was too much personnel in some areas, and vancancies in others. The Department of Health (DoH) spent 99.9 percent on COE. Within the context of budget constraints, there had to be more focus on rightsizing of institutions. There where areas where minimum staff was needed. The DoH had to get to where there was no staff at all. It was overburdened with COE. He answered Mr Motlashuping about the section 18 takeover. When the NT took over the administration of Limpopo, it was taken over under the current administration. The Treasury did not find the DoH under administration, it was placed under administration. The situation was that the DoH was exhausting its finances by August/September. There was a time when the MECs garage had to be used to take care of patients. The situation was terrible, there was Treasury intervention to change a dysfunctional department. It was presented to their audit committee and they were happy with it. The departments of Education and Health were a strain on resources, and positive things were happening. There was the turning around of a situation where 99.9 percent was being spent in the first six months.

Mr Mahlatsi answered Mr Motlashuping about the use of Implementing Agents (IAs) to avoid PFMA prescriptions. There was engagement with the AG about not using IAs on the way forward, but there were challenges of slow spending. The AG had to audit the IA process, so as not to compromise the PFMA. A decision was taken in consultation with the political principals to withdraw reliance on IAs. He answered about non-competitive and unfair contract management. There was a system in place that forced officials to rotate service providers. There was a tendency to get quotations from specific service providers, but departments were forced to follow a module that prevented that. There would be follow-up on the medical waste removal supplier that was not doing the work but still getting paid. There would be a report to the MEC. The road to Albert Nzula hospital was not initially foreseen. Water was scarce, and there had to be sewer upgrading. It was not done concurrently with construction of the hospital itself, due to poor planning. The sewer upgrading was not foreseen. The municipal sewer structure could not carry the hospital system. It was made sure that the municipality could carry it. It took time to operationalise structures additional to the hospital itself. It had to be done in phases. The hospital was due to open on 15 June. There had been cuts to provincial budgets over the preceding five years. The condition of the road in Zastron would receive attention. The town had no revenue base. Farm schools were reduced to manage costs of employees were there were low learner to teacher ratios. Improved planning could provide solutions for infrastructure spending in the Department of Education.

Ms Rockman added that the Rouxville clinic was part of a massification programme. Public Works had to supervise that. The Treasury would respond further on Gariep issues.

Ms Gaarekwe responded for the National Treasury. She noted that there was overspending on COE and underspending on capital projects. Money was taken from capital projects to finance COE. At the end of the financial year there was an overdraft and the budget showed underspending. With regard to drought relief challenges, she noted that the NT would visit the province and provide the MEC with a proper response. It had to be determined how money flowed. The National Department of Agriculture provided the money to deal with it. Regarding the conditional grant framework, she said that national departments would take a portion of the grant for their own monitoring and evaluation. However, money could not simply be taken, it had to be requested from the sector. Departments could not take the money without consultation, for purposes that it was not intended for. The problem was that provincial departments would agree at meetings, but would not tell their own departments that they had agreed with national departments. The provincial department would ask why money could not be used to build new roads with a grant, for instance, but when they went back to their provincial colleagues they kept quiet at meetings. It had to go to MinMEC. The intergovernmental system needed to improve. For instance, with the stopping of the education infrastructure grant, provinces that benefitted did not complain. The Division of Revenue Act did not require of the NT to write about the matter. The Minister had to write as part of improving intergovernmental relations. The NT did not have all the information about audit issues, but there were issues between the office of the Accountant-General in the NT, and the AG.

The Chairperson remarked that there was a MinMEC budget council that met four times per year. Twice a year there was a budget forum at which SALGA and the CoGTA Deputy Minister was present. It had to be borne in mind that fiscal consolidation had an effect on health and education in all provinces, and also at the national level. The expenditure ceiling would have an effect during the following two years. Stats SA was saying that there would be a revised fiscal framework, at the October Medium Term Budget Policy Statement (MTBPS).

Adoption of Committee minutes
Minutes were adopted for 10 May, 24 May, and 31 May.

The Chairperson adjourned the meeting.


Download as PDF

You can download this page as a PDF using your browser's print functionality. Click on the "Print" button below and select the "PDF" option under destinations/printers.

See detailed instructions for your browser here.

Share this page: