Quarter 4 performance by Departments: analysis

Standing Committee on Appropriations

03 August 2017
Chairperson: Mr N Gcwabaza (ANC) (Acting)
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Meeting Summary

The Standing Committee on Appropriations received presentations by its researchers on the analysis of government departments’ fourth quarter expenditure reports.

The researchers had identified six departments that were of concern. These were the Departments of Public Enterprises, Small Business Development, Basic Education, Water and Sanitation, Correctional Services and Transport. They had also focused on ten state-owned enterprises (SOEs). These were PRASA, SANRAL, the RAF, the RTMC, ALEXKOR, Transnet, DENEL, SAFCOL, SA Express and Eskom.

The government departments were prioritised according to underperformance and over-expenditure of their budgets. The main reasons for underperformance and over-expenditure in most of the departments were vacant critical positions within the departments, and the lack of consequence management for transgressors.

Most of the challenges facing SOEs were governance issues, such as supply chain management (SCM) processes, non-compliance with the Public Finance Management Act (PFMA) prescripts and regulations, lack of consequence management, inadequate leadership oversight, instability, financial and operational unsustainability, and profitability issues.

Meeting report

Mr Phelelane Dlomo and Mr Musa Zamisa, Committee Researchers for the Standing Committee on Appropriations (SCOA), gave a presentation to the Committee on the government departments and state-owned enterprises (SOEs) which had not performed very well during the fourth quarter of the 2016/17 financial year.

The departments were prioritised according to those that had underperformed -- Public Enterprises, Small Business Development, and Basic Education -- and those that had overspent their budgets -- Water and Sanitation, Correctional Services, and Transport. In order to understand over-expenditure, it was important to look at the mandate of the departments, their scope of work, and the SOEs that fell under them.

Departments which had underperformed

Mr Zamisa said that the Department of Public Enterprises (DPE) had an inconsistent spending period from 2012/13 to the 2016/17 financial year. It had spent 91.9% of its budget in 2012/13, 96.5% in 2013/14, 99.2% in 2014/15. There had then been a steady decline, with 97.7% in 2015/16 and 95.8% in 2016/17.

The Department of Small Business Development (DSBD) was a new department that was formed during the 2015/16 financial year, and had spent only 97.5% of its budget. Its expenditure had since then dropped significantly to 90.8% for 2016/17.

The Department of Basic Education (DBE) had spent 99.3% of its budget during the 2012/13 financial year, and then dropped significantly to 92.6% in 2013/14 and 2014/15 before increasingly sharply to 99.8% in 2015/16. Analysing the overall expenditure of the DBE was challenging because significant portions of the budget gets transferred to individual provincial departments. It was therefore important for the Committee to conduct oversight visits to provincial departments to see how funds were being spent.

The DBE had decreased in its spending from R1.3 billion in 2012/13 to R937.8 million in 2016/17. The DPE had increased from R9.7 million in 2012/13 to R14.2 million in 2016/17. The DSBD had increased from R28.6 million in 2015/16 to R120.9 million in 2016/17.

According to the economic classification, both the DBE and the DSBD were underspending their budget allocations for payments for capital assets, whereas the DPE was overspending on transfers and subsidies (grants, incentives, etc.).

According to expenditure per programme, the DPE was not performing on portfolio management and strategic partnerships as a result of key positions being vacant in the Department. It also had governance issues as a result of capacity constraints. The main reason for underspending was unfilled funded and critical positions within the department, totalling 32. There were 19 vacant critical positions, such as Deputy Director Generals, Directors, Assistant Directors and Senior Managers. Lack of capacity raised the question of whether the Department was in a position to monitor the performance of key SOEs such as Eskom, Transnet and Denel.

The DSBD was also underspending on its programmes. 92.1% of R93.2 million had been spent on the Small Medium and Micro Enterprises (SMME) cooperatives’ programme design and support. 53.5% of R12 million had been spent on the SMME policy and research programme. 86.1% of R15.8 million had been spent on administration. The main reasons for underspending in the DSBD were unfilled funded and critical positions due to on-going organisational restructuring; non-transferal of budgets in SMMEs and cooperative programmes; underspending on cooperative incentive schemes; and the late appointment of the adjudication committee. A key question to consider was whether the Department was in a position to create a conducive environment for small businesses.

The DBE was underspending on all its programmes: educational enrichment services, planning information and assessment, teachers, education human resources and institutional development, curriculum policy, support and monitoring, and administration. The main reasons for underspending were delays in the implementation of the Kha Ri Gude programme; poor performance on the Accelerated Schools Infrastructure Delivery Initiative (ASIDI), where R947 million was unspent; and withholding of the final transfer of R6.6 million of the HIV and AIDS (life skills) conditional grant to Limpopo. Key questions to consider were whether the issue of mud schools in the Eastern Cape would be resolved any time soon; what would be happening with the withholding of conditional grants in the Limpopo province; and why were there always challenges in the implementation of the Kha Ri Gude programme.

Departments which had overspent

Mr Dlomo presented the section on departments which had overspent, focusing on the Departments of Water and Sanitation, Correctional Services, and Transport.

Mr Dlomo said that the Department of Water and Sanitation (DWS) was the most important department in his view, especially with the emergence of droughts in the country. It had never spent 100% of its budget from 2011/2012 up until 2016/17. The Department had a budget of R15.2 billion, and had exceeded it by R18.9 million.  However, the Committee needed to look at how the budget had been spent to support programmes. The water sector regulation programme had spent only 81.4% of R346.1 million. Water and sanitation services had spent 39.4% of R738.1 million. Water infrastructure and development had spent 100.2% of R12 billion, while water planning and information management had spent 85.4% of R814.8 million. Key reasons for underexpenditure on programmes were unfilled vacancies, delays in processing invoices, reduced air and road travel as a cost saving measure, audit fees, non-finalisation and approval of the audit plan, delays in concluding agreements with service providers for the national water resources and sanitation services strategy, the water and sanitation master plan, and feasibility and reconciliation studies. The DWS was not compliant in most of the key performance areas (KPAs). Of great concern was the lack of mechanisms to ensure suppliers were paid on time so that delays in processing of invoices could be avoided.

The Department of Correctional Services (DCS) had an available budget of R21.5 billion, and had spent just over 100% -- R5.4 million more than the allocation. Departments were pressured to spend 100% of their budgets because if they reported underspending in their annual reports, they would more than likely face budget cuts in the following financial year instead of increases. Where certain programmes were underspending, monies were transferred to other programmes with bigger expenditures. The Care Programme had spent 113.1% of the R1.9 billion allocated, the social reintegration programme had spent 105.7% of R807.8 million allocated, the administration programme had spent 100.2% of the R3.8 billion allocated, the rehabilitation programme had spent 97.2% of R1.2 billion, and the incarceration programme had spent 98% of R13.7 billion. The key reasons for under expenditure were unfilled funded vacant positions, cost containment measures, and the embargo implemented on the acquisition of machinery and equipment. Some reasons for over-expenditure were increases in the food prices for suppliers, fuel and vehicle repairs for fleet services, an increase in the property payments, and the payment of performance bonuses for non-senior management service (SMS) staff. The Department was non-compliant on most of its KPAs.

The Department of Transport (DOT) had an available budget of R56.4 billion, and had overspent by R117.8 million. The maritime transport programme had spent 127% of the allocated R120.8 million, the road transport programme had spent 101% of R25 billion, the civil aviation programme had spent 83.1% of R210.4 million, and the administration programme had spent 92.9% of R365.1 million. Key reasons for over-expenditure were increases in the transfer payments to the Railway Safety Regulator, and transfers made to the Electronic National Administration Traffic Information System (eNATIS). Reasons for under-spending were unfilled vacant positions, fewer than anticipated invoices being paid, slow spending on the review of tax recapitalisation model and the integrated public transport network in municipalities due to the discontinuation of national freight. The Department had partial compliance on most of its KPAs.

Prioritised State-Owned Entities (SOEs)

Prioritised entities during the 2016/17 financial year were the Passenger Rail Agency of South Africa (PRASA), the South African National Road Agency (SANRAL), the Road Accident Fund (RAF), the Road Traffic Management Corporation (RTMC), ALEXKOR, Transnet, DENEL, the South African Forestry Company (SAFCOL), SA Express and Eskom.


The objectives of PRASA were to provide commuter rail services in the public interest, and to provide long haul passenger and bus services. It had received an unqualified audit opinion in the 2015/16 financial year. 2016/17 data was not yet available.

PRASA had challenges with regard to compliance with legislation. Procurement processes were not always followed according to section 51 (1) (a) of the Public Finance Management Act (PFMA). Contracts were issued to suppliers in excess of the period stipulated on the Supply Chain Management (SCM) policy. Deviations were paid without approved extensions in the form of an addendum stipulating the reasons for deviations. The preferential point system was not always applied according to section 2 (1) (a), and contracts were awarded to companies that were not qualified in accordance with the Construction Industry Development Board’s (CIDB’s) regulations.

PRASA also had challenges in their leadership, with crucial posts been vacant. There was no consequence management for transgressors, and there was a lack of review on certain policies such as the bus continuity plan, disaster plan, the technological strategic plan and government policies.


The main objectives of SANRAL were to manage national road networks effectively, provide safety on the roads, maintain good governance, pursue research, innovation and best practice, safeguard the SANRAL reputation, and pursue and maintain environmental sustainability. SANRAL had received an unqualified audit opinion.

SANRAL had challenges with regard to compliance with legislation. Tenders were awarded to service providers without being advertised in the bulletin, conflicting interests were not always disclosed, preference points were not always calculated according to the Preferential Procurement Policy Framework Act (PPPFA) requirements, goods with a value below R500 000 were procured without obtaining price quotations, the Automobile Association (AA) did not take steps to prevent irregular expenditure, there was a lack of consequence management, and investigations conducted by the Public Protector since 2012 were still on-going.


The main objective of the RAF was to ensure payment of compensation for loss and damages wrongfully caused by the driving of motor vehicles. It was a public entity listed in schedule 3 (a) of the PFMA, and had received an unqualified audit opinion during the 2016/17 financial year.

Challenges facing the RAF were that AA had not taken effective steps to prevent irregular, wasteful and fruitless expenditure. It had incurred irregular expenditure amounting to R11.6 billion, and wasteful and fruitless expenditure amounting to R31.1 million. Reasons for irregular expenditure were non-compliance with SCM, PFMA and RAF Act practices; lack of consequence management for transgressors; and non-compliance with the provisions of the RAF financial misconduct policy and PFMA, which constituted financial misconduct and the need for disciplinary action.


The main objectives of the RTMC were to enhance the quality of road traffic services; to protect road infrastructure and environment; to phase out public funding and phase in private sector investment; to regulate, strengthen and monitor intergovernmental contact and cooperation in road traffic matters; to improve the exchange and dissemination of information on road traffic matters; and to develop human resources in the public and private sectors that are involved in road traffic.

The challenges facing RTMC included inadequate controls to validate the accuracy and completeness of the database used in recording the number of cars that were stopped and checked, and pending investigations on fraud cases. It had received an unqualified audit opinion.

The Department of Public Enterprises had purview over major SOEs that formed the backbone of the South African economy. These SOEs covered critical economic sectors such as transportation (Transnet and SA Express), energy (Eskom), and manufacturing (ALEXKOR, SAFCOL, and DENEL). Ratings agencies used these to diagnose the strength of the South African economy.

DENEL covered the Defence Force, a sector on its own that provided significant jobs and exported a lot of material.

ESKOM was the powerhouse of the country. Big industries, SMMEs, households and all sectors of the economy, such as health and education, were dependent on the power grid to fulfil their functions.

TRANSNET was a rail, port and pipeline company that connected South Africa to various regions in Africa, and provided infrastructure investment and jobs.

SA EXPRESS  was an aviation company that connected South Africa to various regions in Africa. It had not tabled its 2015/16 annual report, and chances of receiving 2016/17 annual report were slim. Most SA Express aircraft had been grounded due to safety concerns.

SAFCOL was involved in the forestry sector through timber harvesting, processing and related activities.

ALEXKOR was mainly responsible for South Africa’s mineral wealth.

Most of the challenges were common to all the SOEs, such as governance issues, SCM processes, non-compliance with PFMA prescripts and regulations, lack of consequence management, inadequate leadership oversight, instability, financial and operational unsustainability, and profitability issues. Other unique challenges included Eskom being owed revenue by municipalities, businesses and illegal connectors, and weak economic performance.


Mr A McLoughlin (DA) asked for clarity on whether SA Express had not tabled their annual report from 2015/16, which was now two years later. He was concerned because the airline was still active, as he had flown on their aircraft on numerous occasions. He asked why SOEs paid much higher salaries to their executives than government departments.

Ms M Manana (ANC) said that the Committee needed to take a decision to invite the targeted departments and SOEs to account to Parliament.

Ms S Shope-Sithole (ANC) asked the committee researchers to conduct further research on programmes to which additional funding within the budget had been transferred. She asked why the focus was only on SA Express and not also South African Airways (SAA).

Ms D Senokoanyane (ANC) said that the researchers had really applied their minds when choosing which departments needed to be prioritised. She asked if the Department of Public Enterprises had indicated whether they were receiving any additional funding to fill vital vacant positions in SOEs.

The Chairperson asked whether SA Airlink was still operational and about how its financial accounts were looking. Did SA Airlink and SA Express report directly to National Treasury, like SAA did? He said that there were numerous service providers that had been doing business with Eskom for many years, and most of those contracts were due for renewal. The service providers had been faced with various allegations regarding fraudulent relationships with Eskom, and he asked that the committee researchers find out more information on those issues.

Ms Shope-Sithole asked if the committee researchers could establish why the Minister of Public Enterprises had withdrawn certain reports at a media conference.

The Chairperson asked the researchers to track the budget of Transnet from 2009/10 until recently, because in earlier years they had had a budget of approximately R310 million, with a clear mandate on how to spend it.

Ms Senokoanyane asked what the researchers had meant when they referred to non-compliance and partial compliance.

Researchers’ responses

Mr Zamisa said that organisational structures were reported as the main reason for vacancies. The entities had not given any other reasons.

The salaries of SOE executives needed to be discussed at a policy level.

Ms Shope-Sithole asked the researchers to see her after the meeting, because she had information pertaining to why SOE executives received higher salaries than government officials.

Mr Zamisa said he was not sure if SA Airlink fell under National Treasury, but SA Express was under the Department of Public Enterprises.

Mr Dlomo said that the Committee needed to discuss with SA Express and SA Airlink how far they were in their discussions for a possible merger.

Mr Zamisa said that government was contributing to the lack of sustainability of small businesses in South Africa by delaying payments to service providers outside of the 30 day payment period.

Mr Dlomo said that partial compliance and non-compliance in certain departments related to mechanisms not being implemented on time and therefore resulting in a backlog of payment of approved invoices.

In order to reach 100% of budget expenditure, monies needed to be transferred from some programmes that underspent to programmes that required to overspend in order to achieve their target.

Programmes were funded, based on their mandate and their projected budget to achieve their mandates. However, poor planning often resulted in over-spending or underspending.

Conditional grants were often given to departments for transfers to their recipients, as was the case with the Department of Social Development and the SA Social Security Agency (SASSA).

The Chairperson thanked the researchers for their efforts in presenting to the Committee, as well as everyone in attendance who took an interest in the work of the Committee.

The meeting was adjourned.


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