KZN 2016/17 expenditure: Provincial Treasury report; Transkei Road Transport Corporation Petition report

NCOP Finance

28 June 2017
Chairperson: Mr C De Beer (ANC, Northern Cape)
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Meeting Summary

The National Treasury stated that for KwaZulu-Natal, total accruals and payables increased to R4.2 billion in 2016/17. The bulk of those emanated from Education; Health; Transport and Cooperative Governance and Traditional Affairs. The province over collected against its own revenue target. The cash balance declined from R3.5 billion to R2.9 billion over the review period. Education underspent on Compensation of Employees, and training and development. Delays in paying contractors were due to lengthy supply chain management processes. Health experienced severe financial pressures and had to reduce the intake of student nurses and community service staff. There was growing discontent among health professionals due to poor working conditions, and overspending on medicines. Procurement of essential machinery and equipment like generators led to under expenditure in payments for capital assets.

The KZN Provincial Treasury stated that an intervention would take place in the Department of Health, with regard to supply chain management; control of procurement; maintenance and acquiring of machinery; accruals, and internal controls. Intervention in Education was directed at compensation of employees, as more people had to be employed. The Department of Public Service and Administration circulars demanded spending money that the Treasury did not have. There was an increase in accruals, due to an accrual being raised for Izinduna back pay. There was an increase in irregular expenditure due to contracts entered into by Human Settlements with municipalities. There was a decrease in fruitless and wasteful expenditure. Two departments under collected on own revenue, and 13 departments over collected. Education and Transport underspent on infrastructure. Education was the main contributor to underspending on conditional grants.

In discussion, Members had remarks and questions about non-filling of posts; underspending on training and development by Education; contractors not paid on time; discontent that caused medical professionals to leave, and attracting medical skills; procurement of essential medical machinery; irregular, fruitless and wasteful expenditure; consequence management; procurement problems; month-to-month contracts; employee exist costs; portfolio committees in the province, and tenders that drew only three quotations. Discussion could not be more extensive due to time constraints.

Meeting report

Introduction by the Chairperson
The Chairperson said the engagement with KZN was the last engagement with the provincial treasuries. He commended the attendance of MECs during the engagements. The only MEC that did not attend was the Western Cape MEC, who had to attend a meeting about the storm crisis in Knysna. It was important to look at the fiscal position of each province to see what was going on in all departments. The Appropriations Select Committee would deal with the micro-economic situation.

National Treasury on KZN Provincial budgets and expenditure, fourth quarter 2016/17
The briefing was presented by Ms Ogalaletseng Gaarekwe, Director: Intergovernmental Relations.
Total accruals and payables not recognised increased to R4.2 billion in 2016/17. The bulk of those emanated from Education; Health; Transport and Cooperative Governance and Traditional Affairs (CoGTA). The province over collected against its adjusted own revenue target. The cash balance declined from R3.5 billion to R2.9 billion over the review period. Education underspent by R291 million on Compensation of Employees (CoE). There was underspending of R217 million on training and development in that department. There were chronic delays in paying contractors on time due to lengthy internal supply chain management (SCM) processes. Health experienced severe financial pressures and had to reduce the intake of student nurses and community service staff. There was growing discontent among health professionals with regard to poor working conditions and unavailability of tools of trade. The Department lost 352 medical practitioners between April 2016 and April 2017. There was overspending on medicine by R492 million. The Department deferred the procurement of essential machinery and equipment like generators and Emergency Medical Services (EMS) equipment, which led to under expenditure of R196 million in payments for capital assets.

KZN Provincial Treasury on their preliminary expenditure for the 2016/17 financial year
The briefing was presented by Ms Belinda Scott, Finance MEC, and Mr Zamisa Magagula, Provincial Treasury HOD. The Committee was informed that there was intervention with regard to the Department of Health, directed chiefly at SCM. The intervention would encompass control of procurement; maintenance and acquiring of machinery; accruals amounting to R1 billion and going back to 2009, and internal controls. In the Department of Education, there was engagement with the Premier about intervention in CoE. More people had to be employed. There were problems around Department of Public Service and Administration (DPSA) circulars, which required money that the Provincial Treasury did not have, To comply fully with the circulars could amount to R6 billion. There was an increase in accruals due to an accrual being raised for Izinduna back pay. The Department of Education was verifying numerous invoices for the school nutrition programme. R400 million of invoices for infrastructure were received from Public Works. There was an increase in irregular expenditure due to contracts entered into by the Department of Human Settlements with municipalities. Other contributing factors included fewer than three quotations obtained. There was a decrease in fruitless and wasteful expenditure. Two departments showed under collection of own revenue and 13 showed overcollection. Socio-economic challenges in the province limited the ability of the Department of Health to recover revenue owed it by the public. The Departments of Education and Transport reflected infrastructure under expenditure in respect of maintenance and repairs. The Conditional Grant allocation for the province was underspent by R31.542 million, with the main contributor being Education, in the National School Nutrition Programme.

Discussion
Mr T Motlashuping (ANC, North West) asked the KZN Provincial Treasury (PT) about its own audit outcome. He referred to slide 12 of the NT presentation. The province had underspent due to the non-filling of posts, in line with the moratorium on the filling of posts. In SA there was unemployment, poverty and inequality. There were funded posts that were not filled. He asked if those posts were critical. There was underspending on training and development. He asked for an explanation for that. Contractors were not paid on time. He asked if that implied non-compliance with the prescription of having to pay invoices within 30 days. It could destroy SMMEs and cause their businesses to collapse. Discontent about medical professionals leaving was in the news. Conditions of work were not conducive to retaining essential skills. He asked for an explanation on what the department and the province were doing to attract skills.
He referred to slide 13. It was stated that the procurement of essential machinery was deferred. Generators in hospitals were necessary in case of electrical failure. In that event, the lives of people would be at risk. Irregular expenditure for the Departments of Transport and Health had to be explained. Fruitless expenditure for Education was not reflected upon. He was not convinced of the authenticity of the table on irregular expenditure. Transport was not included, and yet there was a figure that reflected total expenditure. He asked if the total figure could be taken as the true picture.

Mr O Terblanche (DA, Western Cape) commended the province for being the first to have spent its budget practically to the last cent. It was also the first to get the capital spending budget fully spent. But irregular and fruitless and wasteful expenditure was alarming. It was a serious problem. Serious intervention was needed. Some areas in KZN had procurement problems. SCM was falling apart. He asked what remedial actions departments had taken, and what the impact thereof was. In some cases, there was criminal activity. He asked how many cases had been reported, and whether people were charged due to an internal process. KZN could follow the example of the Western Cape when it came to irregular and fruitless and wasteful expenditure.

Mr F Essack (DA, Mpumalanga) remarked that when one looked at reports of the two previous years, nothing drastic was different. He asked what was done about Auditor-General (AG) reports, and how seriously those were taken. He asked about month to month contracts, and what the way forward was supposed to be. He asked why there were tenders where only 3 quotations were obtained. He referred to slide 34, which showed that much money was spent on exit costs for employees. Money was going down the drain.

Dr E Mateme (ANC, Limpopo) commented that the NCOP was not supposed to be the first line of defence for good governance. She asked what impact on service the portfolio committees in the provinces had. There were some challenges that were not supposed to be brought to the NCOP. The NCOP focused on what went beyond the provincial committees. Stories about SCM in the media were currently proved to be true. She was concerned about medical professions like oncologists having to throw in the towel. She asked how the province defended itself. It was unacceptable. She wished that the KZN Premier was there to hear what had been said, and to decide whether the portfolio committees in the province were equal to their task. She hoped to see a better picture at a future engagement.

Mr L Gaehler (UDM, Eastern Cape) referred to page 13. The irregular expenditure trend was from R39.607 million for the office of the premier in 2014/15, to R5.440 in 2016/17. He asked for an explanation. He asked why contracts were not registered before contractors went on site. It was not possible to transfer money without contract documents. For payment of contracts over a long period, service providers had to make requests. He asked why there were only 3 quotations in some instances. Correct procedure was to have 10 or 20 quotations, and to narrow that down to three.

The Chairperson referred to Dr Mateme’s comment about the role of portfolio committees in provincial governments. It was necessary to look deeper into issues. The PT should have given an action plan. It could be derived from the AG report, by rewriting the AG findings in action.

Ms Scott replied on the PT audit outcome, that a clean audit was received for six years in a row. Questions about the non-filling of posts had to be put to the President. The President and the Minister of Finance had advised that posts had to be cut down, only critical posts were to be filled. It was done through PERSAL, the organogram was checked and then the portfolio committee had to see if there was money. There was to be a full provincial intervention into Health. Non-payment of contractors would be covered. Oncologists were being employed, details were with the DoH. Issues like generators and month-to-month contracts were being dealt with, according to timelines. Lack of machine maintenance led to losing oncologists, as they depended on the machines. Assessments would be done before the intervention, which would be linked to timelines. An executive statement would be forwarded to the House. Stakeholders were being engaged, the PT would see to it that there was a turnaround.

On the low number of quotations, the problem was that highly specialised jobs were involved. One would call for quotes and only three would be forthcoming. There were specialist services, especially in Health, that had to be rendered. There was re-advertising, and still sometimes only one quote would be received. The AG was engaged on the matter.

On provincial portfolio committees, they were engaged with at the provincial legislature level. Human Settlements would transfer to municipalities and then sit back. The MEC for Human Settlements was called to account by the AG. Issues emerged from auditing. The Provincial Treasury worked with the AG throughout the year.

Mr Magagula replied about planning for financial management. AG findings were analysed. Each vote was subjected to detailed analysis to see where the PT could render support. Departments had Accounting Officers (AOs) that had to assume responsibility.

The Chairperson mentioned that sections 81 to 86 of the PFMA prescribed what had to be done if there were contravention.

Mr Magagula continued that it was not possible to intervene in each and every department. The AG provided guidance. There were changes in what the AG audited. Leave used to be a real issue, but currently that was no longer the case.

In reply to Mr Motlashuping, transport was indeed included in the table he referred to. It was blackened out during photocopying. He answered Mr Terblanche about irregular expenditure, that there was poor consequence management, which would have to be dealt with. Each department had an AO and an executive authority, to deal with transgressions. It was problematic when it occurred at senior management level. With regard to exit costs, he replied that exist costs simply had to be paid. Education and Health had gained notoriety because of pension arrangements.

The MEC undertook to forward reports on DPSA circulars and Health interventions.

Dr Mateme suggested that the Portfolio Committee relevant to the Provincial Treasury be called when the National Treasury was called.

The Chairperson added that the Chairs of Finance from the legislatures could also be called.

Mr Gaehler referred to the use of implementing agents (IAs) (slide16). The correct process was not followed. He asked if there was a roster. Other provinces used rosters, when consultants and engineers were used.

The Chairperson commented that the Committee was briefed by the NT, and the figures related to the spending of the Urban Settlements Grant by Metros were devastating. There would be a meeting on 2 August with the metros, and the provincial treasuries had to zoom in on that. The meeting would be on 1 and 2 August. Provincial legislature Chairs of Finance would be invited. He asked what was happening in KZN with regard to the CEO initiatives launched by the President and the Minister of Finance. Engagement with the private sector was encouraged, so that it could help grow the economy.

Mr Magagula replied that such engagement also took place with regard to agriculture. It was not restricted to the CEOs of industry. It was project/problem based, with a purposeful approach to unleash agricultural potential. Captains of industry were also involved. In the economic cluster, there was engagement to see what government could do.

The Chairperson thanked the MEC and HOD. On an oversight visit to Jozini in KZN, it turned out that the area was very dry. Water was taken to the villages. It was the responsibility of MPs and EXCOs to oversee such matters.

Discussion of the Transkei Road Transport Corporation (TRTC) petition
The TRTC petition was received by the office of the NCOP Chairperson on 1 December 2014 and subsequently referred to the Petitions and Executive Undertakings Select Committee. The petition requested the intervention of the NCOP to assist petitioners to receive pension benefits, unpaid leave and UIF related benefits, to which they were entitled as former employees of the TRTC, which was dissolved and liquidated in January 1996.

The Chairperson referred to a report by the Select Committee on Petitions and Executive Undertakings on the hearing of the Transkei Road Transport Corporation, held in September 2015. It was a legal issue. The matter was referred to the Finance Select Committee. The Committee staff had to do an analysis with the legal section and then return to inform the Committee about the way forward. There had to be legal input from the National Treasury, and the Provincial Treasury had to be involved, as well as The Eastern Cape Provincial Government and the Office of the Premier.

Mr Motlashuping noted that he had read a court judgement on the issue. It had to become a resolution of Council. There had to be engagement with the people. There was only a document from the legislatures. The Select Committee had to intervene. Alexander Forbes had represented the petitioners as part of their pension fund. The Select Committee did not have all the documents and was at a disadvantage. It was unfair to expect of the Committee to engage with the report. It had to go to the Eastern Cape to obtain more information.

The Chairperson noted that he was informed about it in the plenary.

Dr Mateme commented that she had been told that a delegation from the Eastern Cape parked on the Parliamentary precinct about a pension matter. She advised that research had to go into the issue. Simply going there would only make the people angry. There was information that was not shared with the people. There had to be fact finding. People might expect answers form the Select Committee. It was advisable to do a thorough investigation.

The Chairperson replied that it was exactly what the research unit was requested to do. A lot of homework had to be done.

Mr L Nzimande (ANC, KZN) remarked that the Petitions Committee had done a thorough job. The matter was related to transition in the Transkei and missing records. He had sat in a meeting with Alexander Forbes who held pensions. The Petitions Committee came close to concluding the matter. He advised that there be a meeting in the following term with the Petitions Committee. Their Content Adviser, Dr Gondwe, and the Research Assistant, were in possession of many documents. The matter had to be reopened. At the time of transition, National Treasury was not involved. The question was what had happened to records, and who benefitted. He wondered why the matter was referred to National Treasury, when costs had not been quantified. The Company had filials in the East and West Transkei. The East side did not benefit, and it was managed from the West side. There had to be a meeting with the Petitions Committee and its Researcher and Content Adviser, and legal advisers, which had to be presented to all stakeholders.

The Chairperson noted that Mr Mohai, who was Chairperson of the Economic Development and Small Business Select Committee, invited the acting Chairperson of the Petitions Committee and himself to a meeting. He did not know why the Finance Select Committee was engaged.

Mr Gaehler remarked that he had been involved with tracing money. The TRTC was liquidated. When a company was liquidated and workers were not paid, the question was what happened to the money. There was R80 million invested from 1994 that could not be withdrawn. Money sat with the First National Bank (FNB) in Mthatha. Mr Munton, for Alexander Forbes, had claimed at first that no money was owed to workers, but later admitted that money was indeed owed. Money was also invested in Old Mutual, besides FNB. Money was invested in those financial institutions, and the Finance Select Committee could not investigate that, but National Treasury could.

Adoption of minutes
Minutes of 21 June 2017 were adopted without amendment.

The chairperson announced that there was an invitation by APAC for training on 7 and 8 August.

Committee Programme
The Chairperson announced that the Committee was awaiting legislation transferred to it from the National Assembly. There had been a review of the Money Bills Act on that morning. A date had to be set for public hearings. He was approached by Mr Carrim, Chairperson of the Finance Standing Committee, and Dr Khoza, a Member of that Committee. He had replied that 2 August would be a suitable date. He requested that two members of the Finance Select Committee be released to attend hearings.

The Chairperson adjourned the meeting.

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