National Departments Quarter 4 Expenditure patterns: Treasury briefing

Standing Committee on Appropriations

21 June 2017
Chairperson: Ms Y Phosa (ANC)
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Meeting Summary

Apologies were tendered on behalf on the Minister and Deputy Minister.
The Committee noted that it was important that the Minister and Deputy Minister attend; the Minister had to provide an overview. If the Minister or his Deputy could not come, the Committee had to be informed timeously, so that the meeting could be restructured or postponed.

National Treasury cited that as at 31 March, total spending by departments stood at R716.6 billion, which came to 98.8 percent. Total underspending amounted to R4.2 Billion, or 1.2 percent. There was significant underspending by Departments of Cooperative Governance and Traditional Affairs; Basic Education; Telecommunications and Postal Services, and International Relations and Cooperation. Overspending occurred in the Departments of Transport; Water and Sanitation; and Correctional Services. Spending was analysed for the functional groups of Health and Social Development; Education and related departments; Administrative Services; Justice, Crime prevention and Security; Economic Services, and Urban Development and Infrastructure. National Treasury underspent due to slow disbursement of the Jobs Fund and withholding of funds to Mbombela municipality. Telecommunications and Postal Services underspent in the Information Communications Technology infrastructure support programme. There was overspending by Water and Sanitation for the bucket eradication programme.

In discussion, the department that came in for the most severe criticism and interrogation was National Treasury itself, for failing to make any mention of spending on the Integrated Financial Management System.  Members felt very strongly that an issue that had received media attention rightly deserved to be addressed by the Treasury. This concern linked up with the need expressed by Members, especially the Chairperson, to know what happened to money, and where it was currently located. National Treasury was admonished to lead by example, and to comply with the Public Finances Management Act and its own regulations. In that regard, Treasury was also criticised for planned over expenditure on Compensation of Employees. In addition, Members had remarks and questions about the impact of spending on service delivery; rollovers; the Jobs Fund; broadband connection; the Electronic National Traffic Information System; the withholding of funds from Mbombela municipality; overspending by Water and Sanitation on the Bucket Eradication programme; shifting of money between programmes; underspending on the older person’s grant; value for money; mergers of public entities, and the endorsement of organograms by Public Service and Administration.

Meeting report

Introduction by the Chairperson

The Chairperson welcomed everyone to an important meeting. The National Treasury (NT) report on expenditure was an important budget execution transformation tool for national development. For consolidation to happen in the midst of prolonged low growth, there had to be more vigilant budget planning and execution, and more intensive monitoring by the Standing Committee. In terms of the Money Bills Act, spending patterns had to be in line with voted budgets. The key focus had to be on balancing performance and compliance, and on value for money. She hoped for fruitful and robust exchange in the meeting. Engagement with the NT hinged on what it could bring to the meeting. If NT kept information hidden, the Committee could not exercise effective oversight. She advised NT not to bring to the table what it thought the Committee wanted to hear.  NT had to pronounce on achievement of National Development Plan (NDP) goals, and effective use of limited resources. It had to be shown that the use of resources had impact. The new Finance Minister insisted that more had to be done with less.

Ms Julia De Bruyn, Acting DDG for NT, tendered apologies on behalf on the Minister and Deputy Minister.

The Chairperson insisted that that the Committee would prefer to have the Minister in the meeting, as he was the overseer of programmes. He had to take note of Committee concerns.

Briefing by the National Treasury on 2016/17 spending outcomes

The briefing was undertaken by Ms Julia De Bruyn, acting DDG: Public Finance, and Ms Ulrike Rwida, Chief Director: Urban Infrastructure and Development.
As at 31 March 2017, departments spent R714.6 billion or 98.8 percent of the available budget. There was total underspending of R4.2 billion or 1.2 percent. Departments that significantly underspent their available budgets included the Departments of Cooperative Governance and Traditional Affairs (COGTA) (4.4 percent); Basic Education (4.2 percent); Telecommunications and Postal Services (14.1 percent), and International Relations and Cooperation (4.9 percent). Departments that overspent their budgets included Transport (0.05 percent); Water and Sanitation (0.1 percent), and Correctional Services (0.03 percent). The briefing covered actual spending compared to projected expenditure for the following functional groups: Health and Social Development; Education and related departments; Administrative Services; Justice, Crime prevention and Security; Economic Services, and Urban Development and Infrastructure. Significant underspending on Basic Education occurred under the programmes of Curriculum Policy, Support and Monitoring; and Planning, Information and Assessment. National Treasury underspent by 0.9 percent, due to slow disbursement in the Jobs Fund and the withholding of funds from the Neighbourhood Partnership Development Grant to the Mbombela municipality. Small Business Development underspent by 10.2 percent, under the programme of Cooperative programme design and Support. Underspending by Telecommunications and Postal Services was under the ICT Infrastructure Support programme. Overspending by Water and Sanitation was partly due to higher expenditure for the bucket eradication programme.

Discussion

The Chairperson asked about the impact of spending.

Ms De Bruyn replied that NT looked at the money side, whereas the Department of Planning, Monitoring and Evaluation (DPME) was concerned with spending outcomes. It would be useful to the Committee to receive both inputs at the same time. She suggested that the Committee meet with both departments, before it identified departments that had to appear before the Committee about expenditure.

Mr B Topham (DA) asked if underspending was rolled over into the new budget, or whether it could be pushed into a contingency budget.

Ms S Nkomo (ANC) commended a worthwhile input from the NT. She referred to spending outcomes. Underspending amounted to R4.2 billion. The Committee looked at underspending and overspending in terms of the main objective of spending, to reach goals and to deliver on programmes. She asked for a comparison to the previous three years to see if overspending or underspending had increased or decreased, and how that would affect the economy. The people who requested funds had to use it. There had to be effective value for money. She asked about the impact of billions overspent or underspent.

Mr N Gcwabaza (ANC) referred to the Jobs Fund. He asked what the budget was, and how much was in the kitty. With regard to the extent and impact of underspending, the Jobs Fund was critical. The grant to Mbombela municipality was part of underspending. He asked if NT had ascertained whether the amount of money that CoGTA requested resulted in underspending, because of no pre-determination of real needs. Stats SA overspent on its programme 6. Stats SA had to know how to budget properly. The appointment of contract staff for data collection had led to underspending. It had to be explained. He noted that the more comprehensive document distributed to Members was getting thinner all the time. Information was not available to Members, who could not know what was being budgeted for. He asked why there was cancellation of contracts in Telecommunications and Postal Services, and the cost implications of that.

Ms M Manana (ANC) said the report was an eye opener. She referred to slide 15, on Transport. It seemed that the Electronic National Traffic Information System (eNaTIS) was collecting debts but not paying the Department. She asked for an elaboration on broadband connection. Under Education and related departments, labour and Arts and Culture were mentioned, but nothing was said about Higher Education and Sport and Recreation.

Ms De Bruyn answered Ms Manana that Higher Education spent 99.9 percent of its budget. It was not mentioned because underspending was not significant. Underspending was mainly on transfers. The same applied to Sport.

She answered Mr Gcwabaza that the NT tried to balance the amount of information required by the Committee. If the NT could sit with the Committee beforehand and go through each department about the Jobs Fund, for example, or municipal infrastructure grants, information could be tailored to meet Committee needs. In the past, the Committee had at times stated that it was receiving too much information. It would be possible to send the Committee many pages on the Jobs Fund. NT did not want to supply too much information. She asked if it was possible for the Chairperson to make a ruling.

Mr Gcwabaza commented that if there was underspending to a certain amount, the Standing Committee had to be able to balance that against what was available in the budget.

The Chairperson remarked that the Standing Committee at times only discovered later that information had been left out. Officials were inclined to bring to the Committee what they thought it wanted to hear. Information was used for oversight. The Committee wanted real facts, not just glossing over. She asked Mr Gcwabaza to allow Ms De Bruyn to respond, as she knew what he was looking for.

Ms De Bruyn answered that the Jobs Fund amounted to R750 million. There was underspending of R57 million. She replied about the withholding of funds from the Neighbourhood Partnership Development grant to the Mbombela municipality. Quarterly expenditure was checked against conditional grant transfers. Money could be withheld, or rolled over if the municipality could show that it was committed. She answered Ms Nkomo about the impact of underspending on service delivery. The Basic Education school infrastructure backlogs grant could not be spent, due to a range of delays related to the management of contractors in rural areas. Departments could explain further. Some departments were serial offenders.

With regard to broadband, there was no spending for three years, even though there was a budget. There was space in the budget process for rollovers. It was not automatic. Compensation of Employees (CoE) could not be rolled over. Infrastructure monies could be rolled over, if there was a commitment. Invoices that came in late could be rolled over. The Minister had to consider rollovers. Whatever was not rolled over could decrease deficits.
Mr Gcwabaza that the was right about Stats SA. It was projected that a certain amount of people was needed, but in fact more were needed.

Ms Rwida added about broadband, that the President stated in the 2014 State of the Nation Address (SONA) that Telkom would be the leading agent. There was to be an open and transparent bidding process. The Department put out a tender with terms of reference. None of the tenders met the requirements, hence the tender was cancelled in November of the previous year. The Department was looking at a new institutional framework to deliver high speed internet services and to connect 5000 schools and public buildings.

On eNaTIS, with every car licence renewal, an eNaTIS transaction fee of R42 was paid to the Road Traffic Management Corporation (RTMC), an entity of the Department of Transport. That department had a service provider to operate and maintain the system for them. It was subject to an extended legal process that started in 2012 and was concluded in the Constitutional Court in 2017. The licence renewal fees were collected by the RTMC, which stopped paying the money over in 2012. That caused the Department to overspend in 2012/13; 2013/14; 2014/15; 2015/16, and 2016/17. There was misalignment between the Department having to pay for the service, but money was being collected by the RTMC. The Constitutional Court ruled that the contract had to be handed over to the RTMC.

Ms De Bruyn answered Ms Manana on underspending by the Department of Higher Education. The DHE had a budget of 49.2 billion, which was underspent by R50 million, which came to 0.1 percent. There was slow spending on CoE. Sport and Recreation spent 99.7 percent of its budget. Underspending was due to CoE in the infrastructure programme, and goods and services for sports equipment. The underspending was not included in the main compensation analysis, because it was not significant.

Mr Topham noted that Parliament did not report on spending. Part of its R1.6 billion budget was underspent, and not submitted to tracking. He asked if that was routine, or whether it was the first year that it happened.

Mr Gcwabaza asked about overspending by the Department of Water and Sanitation on the Bucket Eradication Programme (BEP). He appreciated that more attention was given to the matter. He asked which programme the overspent money was taken from, and about both negative and positive impacts of money shifted. It was not acceptable in financial reporting terms, but still could have a positive impact. He asked for an explanation. The Integrated Financial Management System (IFMS) was the talk of the day. It was yet again not possible to see where it was in the NT budget. He asked where the issue was located as a budget item. The problem was that billions were spent but it did not appear as a stand-alone item. It was hidden in some programme, but the question was where it was in the budget. It was not fair to the Committee. If spending on the programme was still going on, it had to be reported, not hidden in a programme.

Ms S Shope-Sithole (ANC) commented that the reason she came to the meeting was to hear about IFMS, but all she was hearing about was underspending and overspending. It was not reasonable for the Committee to have to tell people that it had nothing to say on the matter. It was discouraging for NT officials to say nothing about an issue that was prominent in the media. It was a serious national issue. It was stated that rules had been broken. State resources had to be spent in terms of the law and NT regulations. The public was talking about the issue and wanted to be informed. If rules were broken by Education or Health, it did not arouse similar concern. All hopes were pinned on the Treasury, but it remained silent. The Treasury underestimated the IQs of the Committee. Auditor General (AG) reports from 2012 spoke of leadership and consequences. Yet no mention was made of the issue.

Ms Nkomo referred to slide 8. The Department of Health spent 99.7 percent of its available budget. There were supply chain challenges with procurement of condoms. She asked if there was a way to trace it back over a three-year period, to see if it was worse than three years before. The Department of Social Development underspent due to slow spending on the old age grant as a result of lower than anticipated number of beneficiaries taking up the grant. She asked if it was known when people died. NT had to display a sequence of three years, so that it could be known if underspending or overspending had become a habit. 8 percent of a budget could be shifted as virements. She asked if that had become a habit, and what the impact of such shifts was. The Committee was not asking for volumes of information, but rather for more detail.

The Chairperson reminded Members that NT information was a springboard to prioritise departments that would be called in. Where more information was needed, it could be gone into deeper with departments selected. The report of the day was an overall expenditure report. The DPME did in-year monitoring, and could respond from that angle. There had to be monthly reports from all departments. NT had a monitoring and evaluation unit that had to follow up on a monthly basis. Expenditure reports had to be monitored.

Mr Gcwabaza suggested that overspending or underspending cited for programmes, had to also be specified according to separate items.

The Chairperson referred to slide 5. She commented that overspending and underspending was regulated by the PFMA. Anything above two percent was seen as serious deviations from the norm. NT worked with it on a monthly basis. She asked about responses in the form of corrective measures for overspending by the Departments of Water and Sanitation and Correctional Services. CoGTA underspent by R3.2 billion, which was a serious deviation of 4.4 percent. A huge amount of money did not reach beneficiaries. Basic education underspent by R944.7 million, which caused delays in the eradication of unsafe schools. Social development underspent by R602 million. She asked where that money currently was and if it would be recorded as savings in the new financial year. There was a budget principle according to which budgets could be reduced if there were failure to spend. Budget reduction for Basic Education was undesirable. Many children were still in unsafe schools, and money had to be retained. NT had recommended about CoGTA that proof of procurement was unavailable. She had stated in a previous meeting that NT had to find innovative ways to deal with unavailable invoices. The PFMA prescribed that invoices had to be paid within 30 days. Where there was overspending or underspending, NT had to be able to say where the money currently was. The R3.2 billion underspending by CoGTA was a lot of money, and the Community Works Programme (CWP) was accommodated there.

Mr Gcwabaza commented that there was savings as a response to cost containment. He asked if it was correct to call that underspending. It could be recorded in a different form, as for example by DIRCO. The AG would record it as underspending, but it could be viewed as compliance to fiscal consolidation policy. He asked how it was recorded.

Ms Rwida answered Mr Gcwabaza about BEP. The news about that was not as good as might be supposed. It started as a collaboration between the Departments of Human Settlements, Water and Sanitation and CoGTA. Initially it was meant to be a clearly defined programme for eradicating 52000 buckets, and to provide a specific standard of service. In 2014 the new Department of Water and Sanitation (DWS) came into being. That department increased standards, but there was no budget increase. The BEP had to be funded out of other grants, which were the Regional Bulk Infrastructure grant; the Municipal infrastructure grant, and the Human Settlements Development grant. The result was that only standards were upped but there was no additional bucket clearance. At the end of May, the DWS was saying that there were still 25000 buckets to be eradicated. By then all the money for the defined programme had been spent. Budget adjustments were made. NT sat with the DWS, and it was decided that the Regional Bulk Infrastructure grant had to partly pay for clearance. NT recommended that the Inter-Ministerial Task Team be reconvened. The Ministers of CoGTA and Human Settlements were involved in discussions, to align funds with the redesigned programme. The DWS overspent because spending was not aligned with the rest of the budget. There was overspending of R290 on the BEP, but DWS overspent by only R18 million, it offset underspending in other programmes. It did not happen automatically. The PFMA, the Division of Revenue Act (DORA) and the Appropriations Act specified that money had to be specifically and exclusively appropriated. Unauthorised expenditure meant that it was not authorised by Parliament. There was a Parliamentary process described in the PFMA, about dealing with unauthorised expenditure.

She answered the Chairperson that the BEP was an example of how overspending and underspending was monitored. NT responded in its reports to monthly reports by departments, in terms of section 39 of the PFMA. The Accounting Officer (AO) had to take action against unauthorised, irregular, and fruitless and wasteful expenditure. The same had to be done for underspending, as in the case of the Department of Telecommunications and Postal Services. He had to advise on remedial action to be taken to ensure that services were delivered. In the case of Telecommunications, over the preceding three years R700 million was allocated for SA Connect, but there was no delivery, not a single school was connected in nine pilot sites. New institutional frameworks had to be looked at, and service level agreements between the Department and entities. The Department had to partner with the State Information Technology Agency (SITA) and Broadband Instacom. NT asked about the rules of the game around budget and performance.

Ms De Bruyn answered questions about where money currently was. Some monies could be rolled over. If schools were not replaced, and there was a commitment, it could be applied for funds to be rolled over in the adjustment budget. If funds were not rolled over, it could decrease borrowing or deficit, and be approved to stay in the budget. It was the role of NT to see to it that money was spent as it should be. If there was inability to spend, NT could help. NT would attempt to assist the Eastern Cape Provincial Legislature to unlock the problems of small schools. If money could not be spent, she would feel partly compelled to take the money away, but she would also feel compelled to let the money remain for service delivery. There were 3000 schools that were not up to rules and standards. It was hard to recommend to the Minister to tell Cabinet to take money away. The AO had to drive spending, especially on issues that affected the poorest of the poor. Basic Education had to be helped to get the money out. In terms of the PFMA underspending within limits was not wrong, but the AO had to hold to the Annual Performance Plan. The DPME had to render assistance.

On payment of invoices, there were rules in the office of the Chief Procurement Officer, with regard to failure to pay invoices within 30 days. There was a portal to receive complaints, and the unit would approach a department when complaints were received. The payment period had improved since the introduction of the unit in 2016. She could supply more information on the matter.

 On why figures did not match for Parliament, it was budgeted for like a normal department, but NT did not oversee spending. There was a new committee to oversee spending by Parliament. Parliament was the only department that could keep underspent funds. It could be used without rollover. She agreed with Ms Nkomo that the NT had to go back in time to see which departments were serial under spenders. The only problem was that some programmes only ran for one year.

Ms De Bruyn continued that the IFMS was not an item in the current year expenditure analysis. Details about financial management and procurement did not appear in the current report. The AO of the Treasury had to be called to account. Information was under programme 5, under the financial accounting and supply chain management system. It was under NT goods and services. When it came to the first quarter report, it could be listed as a special project. Statistics were not available. She apologised if the impression was created that the issue would be discussed in the current meeting. The matter was not classified under expenditure or proper procurement. It was in programme 5, under goods and services. Information could be obtained for 2016/17 as a separate item. It could be brought to the Committee in the report on the first quarter, after investigation and internal auditing. The AO had to explain about it.

Ms Shope-Sithole said she was under the impression that the project was not concluded, but still developing. If it was an ongoing project, spending had to be recorded like any other spending. She asked why NT did not see the necessity, without being asked, to update Parliament about an issue that was receiving media attention. It ought not to be necessary for her to base her conclusions on what was discussed in the media. Her house was in Hoedspruit, in a rural area. NT was tjoepstil (Afrikaans for silent as the grave) about the issue. She had trusted Treasury, but that trust had been broken. People employed in NT had to have accounting skills. Treasury officials were not teachers or nurses. If that were so, the country would be a banana republic. If rural women were employed in NT, she herself would downgrade the country. NT was simply not worried about the issue. If it had happened in the Department of Justice, she would not worry about it. It was not acceptable that Treasury had to be told to explain itself. NT would have to prove itself.

Mr Topham remarked that Ms De Bruyn and Ms Rwida were in the Public Finance department of the NT. He asked if an invitation could be extended to the DG to explain.

The Chairperson remarked that engagement with NT had already started. A forensic audit report was required, and a follow up meeting had to be scheduled. NT had to provide detailed information on budget expenditure. The Committee wanted to see improvement. NT was also interested in value for money. It had to measure impact made. It had to be able to say that ten bridges were built, for example, or that the budget had made a difference in Community Works Programme employment. The comprehensive document made available to Members was also for public consumption. The impact of fourth quarter expenditure had to be known. The Committee was not yet satisfied with responses about where money currently was. it had to be known where money was allocated. NT could send a response to the Committee about where money was taken to.

In terms of the 2016/17 budget review, government considered the merger or closure of national and provincial public entities. It had a bearing on the work of NT. She asked if NT could identify which entities were merged or closed or restructured. A progress report had to be sent to the Committee. It was the responsibility of NT to assess Human Resource (HR) budget plans, to see if all departments complied. Organograms had to be endorsed by the DPSA. Unendorsed organograms emerged as an area of concern in the engagement with the PSC. She referred to money saved as a result of cost containment measures in the administration. The Committee wanted to know where that money was. The Committee had to amend the budget, and needed direction.

Ms De Bruyn replied that NT worked with the DPME on the public entity process. It could happen that suggestions were made that Cabinet did not agree with. There was A list of entities that could possibly be merged. The Gender and Human Rights Commissions could possibly be merged, to cover all vulnerable groups. But it depended on political decisions. Provincial entities were dealt with by the provinces. Reports could be sent to the Committee. In the current year’s Appropriation Bill, only Parliament could change CoE funding in all votes. Departments had to know what to do to place limits on money available for CoE. NT worked with Public Service and Administration, and was willing to appear together with that department before the Committee. NT would send documentation on public entities, as well as information on what happened with unspent funds and virements.

The Chairperson commented that Treasury had to lead by example. It had to comply with the PFMA and its own regulations. It was stated in the estimated expenditure document circulated to Members, that the NT projected overspending of R89.464 million. She asked how it was possible that the Treasury planned for over expenditure. It would imply planning to use money it did not have. If it had to be planned for, there had to be cost containment measures. She could not agree with over expenditure. Expenditure had to stay within the budget, even if that meant not filling posts. Over expenditure was a deviation from the norm.

Ms De Bruyn replied that there were 14 votes that could run into the CoE troubles, and the NT was one of them. Other departments included the Police, Defence, and Foreign Affairs. She asked that Treasury be reminded about the matter in July/August.

The Chairperson stressed that the Committee did not agree with over-expenditure. Performance and compliance had to be balanced. It was unacceptable for the Treasury to set a precedent for other departments. It had to stay within the two percent margin.

Ms De Bruyn replied that the NT had to oversee all votes, including its own vote. She would see to it that the AO received a letter from her about overs expenditure on CoE.

The Chairperson noted that it would be put into Committee recommendations. The Committee would write to NT. It had to lead by example. The meeting of the day had been an exhaustive engagement. The Committee wanted a forensic audit report, for the purposes of crisis intervention. She advised that the Minister or Deputy Minister had to be present at future meetings. She asked Members for opinions about whether meetings could proceed without the Minister or Deputy Minister present.

Mr Gcwabaza opined that their presence was highly important. In the event of neither of the two being available, there had to be a written apology to explain the absence. In the absence of that, it would be hard to proceed with a meeting. The Minister had to respond to issues raised in the meeting.

The Chairperson agreed that the Minister had to provide an overview. The AO could go into expenditure and other issues.

Ms Nkomo agreed that if the Minister or his Deputy could not come, the Committee had to be informed timeously, so that the meeting could be restructured or postponed.

Ms Shope-Sithole agreed with that, and added that the presence of the AO was also crucial. A meeting would not be complete without him. The AO was accountable in terms of the PFMA. When the PFMA was instituted in 1998, it was stated that managers had to be allowed to manage, but also had to be held to account, also for any delegation of authority.

The Chairperson added that the AO was not accountable for the sharing of information by the Department. But he had to account for the issue of the IFMS. The Committee was worried about the impact of spending.

Minutes

Minutes of Committee meetings for 1, 2, 6 and 7 June were adopted without amendment for. A Member asked about the principle followed when there was a joint sitting with other committees. The Chairperson referred Members to an earlier ruling of hers on the matter, namely that other committees present had to view the minutes to see if it was an accurate reflection of a meeting in which they participated. Other Chairpersons had to sign the minutes. She asked that the right procedure be enquired into further. The Committee Whip advised that the rules that govern committees be consulted.

Announcements

The Chairperson announced that Mr Topham would take the place of Dr Figg, as a new DA Member. She wondered whether Ms E Louw, who had not served in the Committee for long, was still a Member. The ANC needed another permanent Member to replace Dr C Madlopha. The Secretariat would circulate the Committee oversight programme.

Mr Gcwabaza, Committee Whip, announced that oversight proposals were not formally tabled in the Committee. The provinces proposed were KZN and the Free State.

The Chairperson concurred that the report by the Committee Researchers was not tabled in a meeting.

Mr Phelelani Dlomo, Committee Researcher, confirmed that their report was circulated, but not brought to a meeting.

The Chairperson agreed that the final decision on areas to be visited was not shared in a meeting with Members.

Mr Musa Zamisa, Committee Researcher, agreed with Mr Gcwabaza that there was a shortfall in consultation.

The Chairperson apologised to the Committee. The matter would be resolved.

The Chairperson adjourned the meeting

 

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