Adjustments Appropriation Bill: National Treasury briefing

Standing Committee on Appropriations

22 November 2017
Chairperson: Ms Y Phosa (ANC)
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Meeting Summary

The joint meeting of the Standing and Select Committees was for a briefing on the 2017 Adjustment Appropriation Bill, but the first hour was taken up by a discussion regarding the legalities of the meeting. The Democratic Alliance (DA), making reference to the Money Bills and Amendment Procedures and Related Matters Act, highlighted the fact that contrary to the law, the Division of Revenue Amendment Billl had been passed after ten days instead of the prescribed nine, rendering it ultra vires.  Questions were also raised regarding the stage at which a committee began the process of considering a bill and how this process was differentiated from the process of preparing to consider a bill.

Parliament’s legal advisor arrived to provide clarity on the legal questions posed. Making reference to the Act, he implied that the nine-day period for the passing of bills was not binding, and attracted no consequences if not adhered to. However, DA Members were unimpressed with this interpretation and insisted that they would not be party to illegal activities. After more debate, deliberation and detailed explanations, the Chairperson resolved to move forward with the meeting.

The National Treasury proceeded with their presentation on the 2017 Adjustments Appropriation Bill with a focus on virements that exceeded R100 million and incidents of unforeseen and unavoidable expenditure, such as the drought in the Western Cape. Major items included the transfer of R5.2 billion million to defray expenditure in respect of South African Airways’ debt obligations and R3.7 billion to recapitalize the South African Post Office (SAPO). R264 million had been shifted from Police to Home Affairs, to enable the upgrade of the automated biometric information system. The funds would be transferred as soon as the Bill was passed.

The joint Committee Members asked for an explanation on the self-financing expenditure at the Department of Home Affairs. The National Treasury explained that the money received from the issue of documentation – such as passports, visas, identity documents -- was placed into the National Revenue Fund and later reclaimed by the Department. Additional issues discussed included the transfer of virements and the permissibility of such transfers, particularly with regard to the compensation of employees and the movement of funds from critical spheres, such as social grants.

The National Treasury then presented on Budget Vote 7: Adjustments. The presentation was short and precise. The joint Committee was particularly concerned with the under-expenditure on the Jobs Fund and the details of the jobs it created. Also of note was the emphasis by National Treasury on the constrained resources faced by the Department, and its effect on service delivery.

Meeting report

The Chairperson said the meeting was for a briefing on the 2017 Adjustment Appropriation Bill, which  provided an opportunity for permissible revisions to be made to the budget.

Mr A McLoughlin (DA) raised a concern regarding the legality of the meeting. Section 12, sub-,section 15 of the Money Bills and Amendment Procedures and Related Matters Act 9 of 2009, which stated that ‘In the event of a revised fiscal framework, an adjustment appropriation bill must be referred to the Committee on Appropriations of the National Assembly only after the Division of Revenue Amendment Bill (the Division Bill) was passed by Parliament.’

There were questions that arose from this. Was the Bill being considered at this meeting? Had it been referred to this Committee or consideration, and if so, how was this process conducted? As the Bill was passed by Parliament this morning, it was ultra vires as this morning marked the tenth day, but it was meant to be passed within nine days. He asked for clarification from the Chairperson.

The Chairperson said the absence of Parliament’s Legal Advisor, Adv Frank Jenkins, was unfortunate. The sitting was an internal arrangement to receive a briefing. It was a preparatory meeting to avoid a situation where the Minister had to come twice for the same briefing. The briefing had to clarify any questions that may arise and allow both Committees to later regroup and consider the Bill. Procedurally, after the National Council of Provinces (NCOP) had considered the Division Bill, it would then be formally referred to the Committee. The Division BiIl was to be referred this morning, and a formal letter was awaited. The intention was to be proactive, and there was no evident violation of the law.

Adv Jenkins arrived. and Mr McLoughlin was asked to repeat his question.

Mr A Shaik Emam (NFP) commented on the repeated concerns raised, that the committees were not following the correct legal processes. The time had come where it must be established whether the actions of the committees were not procedurally correct. These problems must be addressed and a common ground on the way forward must be reached.

Mr O Terblanche (DA, Western Cape) agreed that a way forward must be sought. However, both Committees had a responsibility to ensure that relevant legislation was followed. In the opinion of the DA within the Select Committee on Appropriations, this was an illegal procedure, and the DA could not be part of an illegal process.

Mr McLoughlin emphasized that he did not think that the process was illegal, but was merely seeking clarity. Was the Bill being considered, or was the meeting in preparation for consideration of the Bill? At what stage did the Committee stop preparing and start considering? If the Bill had been referred to the Committee, how had that happened? The Division Bill, having been passed only this morning was illegal, as it was ultra vires. The passing of the Division BiIl should have happened on the ninth day, and not the tenth day.

Mr N Gcwabaza (ANC) said that the Division BiIl had become a public document as soon as the Minister tabled it in the House. Nothing stopped the relevant committees to start consultation on this public document. Public representatives could not ignore public documents. This was a process of preparation, not consideration.

The Chairperson requested the assistance of Adv Jenkins.

Adv Jenkins, referring to whether the joint meeting of the two Committees constituted a consideration,  said the rules gave very little guidance on the process of consideration. Receiving briefings and doing public consultations before formal referral did not constitute a transgression of the Act, because the purpose was to familiarise the Members with the contents of the legislation.

The power to deal with the purse, that is, matters of budgets and Treasury, lay at the first stage with the executive. Parliament could not proactively do anything about funds without the Minister of Finance, who was tasked with introducing a money bill. Parliament could not introduce a money bill on its own. The Minister of Finance could not disperse any money without an act of Parliament allowing it. This was therefore a cooperative relationship.

The Constitution and the Public Finance Management Act (PFMA) 29 of 1999 required an annual budget cycle. Because of this cycle, there were certain time-frames that had to be adhered to ensure that the budget was completed within the cycle. The purpose of the Act, particularly section 3, emphasised that the Act must be referred to if a money bill was sought to be amended. However, a money bill could not be amended prior to becoming familiar with its contents.

Was it illegal to continue with the meeting if there was a discrepancy in passing the Division Bill in the NCOP because it was passed in ten days instead of nine? This was a technicality. It spoke to the haste in which the Act had been drafted and the haste that the budget was being dealt with. The timeframes given were not intended to create an illegality when a Bill was passed one or two days beyond the boundaries. The intention was more to ensure that Parliament passed the annual budget in good time.

The Act had been drafted in haste. It did not prescribe that there were consequences of illegality if the timeframes were not met. It was an issue of procedure. Technically, there was no need to be too concerned about the issue, as the Division Bill had yet to be amended and the Act was therefore not so strictly applied. Either way, the Act could not be interpreted to prevent Parliament from exercising its constitutional duty to pass the budget within the budget cycle. One would rather look at the substance of the Act, and whether that had been complied with -- for example, the requirement for public consultation and consultations with the Minister of Finance.

This joint meeting was certainly envisaged in the Act. There was nothing in the rules that prevented Committees from receiving briefings jointly.

The Chairperson asked whether there were questions for further clarity. This meeting was not considering the Division Bill. The purpose was to receive a briefing from a key stakeholder to familiarise the Committees with the contents of the Division Bill so that there was no misinterpretation. After this, the separate Committees would consider the Division Bill per the legal prescripts. Other stakeholders would be called to make their submissions in line with the public participation requirement, after which the Bill would be considered.

Mr McLoughlin said he was not swayed by Adv Jenkins’ legal opinion. This law could not merely be a suggestion. Law must be certain and must state the intention of the legislature. If the law stated that something must happen within a certain time, then that was what must be done. It was wrong to brush such rules aside simply because there were no sanctions. It was unfortunate that the Division Bill had been drafted in haste, but this was the law and there was a duty to obey it.

The matter of how a bill was referred to a Committee had still not been answered. It was also still unclear when the process of consideration began.

Ms S Shope-Sithole (ANC) suggested that the Committees go forward with the briefing.

Mr Terblanche expressed his reluctance to enter into a debate with Adv Jenkins. The law was clear and the word ‘must’ was used. This was not a matter of volition. These issues must be clarified in future.

The Chairperson agreed that clarity was important for future sittings.

Mr Shaik Emam encouraged Treasury to go forward with the briefing. What were the implications on the Bill itself by having delayed it by one single day? It was unlikely that this short delay had had any major impact.

The Chairperson encouraged the Members to round off the discussion and move on to the core business of the meeting.

Mr Gcwabaza supported the view to continue with the meeting. He asked Adv Jenkins to interpret the nine days’ clause. Supposing all other processes had been taken care of, did the law prescribe that Parliament must lie idle until the nine days had lapsed, and thereafter pass the bill?

Mr C de Beer (ANC, Northern Cape) referred the Members to the legal advice that had been received on 8 November 2016 regarding the same matter. The Division Bill was passed this morning in the NCOP, working on the working days. Consideration of the Adjustments Bill in the NCOP would be on 1 December 2017. The Act was under review, and this would be the last time that the Committees conducted their work in terms of the Act as it was now. The review was with the Standing Committee on Finance.

Adv Jenkins said that the referral of legislation to a Committee happened when it was referred formally in the Announcements Tablings and Committee Reports (ATC). In this evening’s ATC, the Adjustments Bill would be formally referred to the Standing Committee on Appropriations. After this point, consideration may begin.

It was not that there were no consequences for passing a bill late. If a bill was passed one or two days late, it was doubtful that this was a matter that a court would rule to be illegal. Mr De Beer was correct in stating that it was working days that needed to be counted. In the worst case, a court may find that the amendment to a bill did not follow procedure, and not the bill itself.

In respect of the review of the Act that sought to add a clause, that extended the nine-day period to permit actions taken reasonably close to it. This would speak to whether there would be a sanction on it. The Act made use of various terms to create this timeframe, ranging from ‘after nine days’, to ‘within nine days’. The timeframes had always been the outer limits, meaning that Parliament must take its action after a period not longer than nine days. Some people, however, disagreed with this perspective.

The Chairperson was eager to close the discussion. It would be advisable to get into the habit of conducting official business within the parameters of the law.

Mr Terblanche, saying he was uncomfortable with the legalities of the sitting, opted to leave.

National Treasury on 2017 Adjustments Appropriation Bill

Dr Mampho Modise, Deputy Director General: Public Finance, NT, introduces her team of Mr Mark Blecher, Chief Director of Health and Safety Development; Ms Julia de Bruyn, Chief Director of Education and Related Services; and Ms Gillian Wilson, Chief Director of Public Finance.

The focus of the Bill was to look at the unavoidable and unforeseeable expenditure. It looked at the items that were paid out using section 15 of the PFMA and the expenditure announced by the Minister of Finance at the time of the Bill, and the shifting of funds. The adjustments budget provided for significant and unforeseeable financial and economic events that would affect the fiscus.

There had been several incidents of unforeseeable and unavoidable expenditure:

  • R26.1 million was transferred to Cooperative Governance and Traditional Affairs to address damage resulting from the sinkhole formation in Merafong City Municipality;
  • R 19.8 million went to the health sector to provide relief for a malaria outbreak;
  • R40 million was provided to Agriculture, Forestry and Fisheries to combat the outbreak of the highly pathogenic avian influenza; and
  • R500 million went to Water and Sanitation to implement the Butterworth emergency supply scheme and upgrade the capacity of the Thukela Goedertrouw transfer scheme.

This came to a total of R585.9 million.

In terms of section 16 of the PFMA, the National Treasury had transferred R5 207.9 million to defray expenditure in respect of South African Airways’ debt obligations.

In line with the announcement by the Minister of Finance during the 2017 Budget speech: R4 792.1 million was transferred to the National Treasury to recapitalize SAA; R117 million to Economic Development to establish the Tirisano Construction Fund Trust; and R3 700 million to Telecommunications and Postal Services to recapitalize the South African Post Office (SAPO).

This had amounted to a total of R8 609.1 billion.

R264 million had been shifted from Vote 23: Police to Vote 5: Home Affairs, to enable the upgrade of the automated biometric information system. The funds would be transferred as soon as the Bill was passed.

There were several virements and, with the Committees’ approval, the focus would be on those that exceeded R100 million. The rest of the detail would be found in the Bill. The virements included were Vote 15: Higher Education, Vote 16: Health, Vote 17: Social Development, Vote 18: Correctional Services, Vote 19: Defence, Vote 21: Justice and Constitutional Development, Vote 34: Trade and Industry, Vote 35: Transport, Vote37: Arts and Culture, and Vote 39: Rural Development and Land Reform.

The roll-overs amounted to R216.9 million. These came from the Presidency, Communications, Cooperative Governance and Traditional Affairs, Home Affairs, Statistics South Africa, Energy, Small Business Development, Arts and Culture and Human Settlements.

Self-financing expenditure was dominated by the Department of Home Affairs (DHA), at R1 070. 8 million. This was followed by Defence and Military Veterans, at R380.8 million. In total, self-financing expenditure was R1 546.8 million.

There were also declared unspent funds. The largest ones were the National Treasury, at R237.4 million, and International Relations and Cooperation, at R166.5 million. The latter department was mostly affected by the difference between the exchange rate projections used when it compiled its budget, and the exchange rate costs when payments were processed. The total declared unspent funds for the year were R1 668.0 million.

The declared under-spending in the DHA was because the project itself showed under-spending, and Treasury monitored the projects on a quarterly basis. From the outcome of the first two quarters, it was evident that it would be difficult for the DHA to spent the entire amount during the fiscal year. Moreover, there were funds moved from the Police to the DHA which would be difficult to spend after the approval of the Bill, as there was not enough time.

Conclusively, the spending increase from the 2017 budget was from R1 409.2 billion, to a revised estimate of R1 413.1 billion.

Discussion

Mr D Maynier (DA) said his questions would require detailed answers, and he would be happy to be furnished with a memo from National Treasury at a later date.

In terms of section 4 of the Act, the Minister may impose conditions on certain appropriations in the schedule. Had the Minister imposed conditions, and if he had, what were they specifically -- as proposed in respect of the appropriation, such as SAA?

From experience, it was the small virements, and not the big ones, that were usually of interest. On page 12 of the Adjusted Estimates of National Expenditure (AENE), Vote 3: Communication, there was a R1.5 million virement for a vehicle. On page 69 of the AENE, in respect to Vote 10: Public Service and Administration, there was a virement for vehicles in the amount of R750 000. On page 76 of the AENE, in respect of Vote 11: Public Works, there was a provision for R1 million for vehicles. On page 215 of the AENE Vote31: Small Business Development, there was a R million virement for vehicles. On page 245 of the AENE Vote35: Transport, there was again a R3 million virement for vehicles. The details of the people for whom these vehicles were procured, the makes and models of the vehicles, and the cost breakdown of the vehicles, were required.

On page 63 of the AENE, Vote 9: Public Enterprises, there were three virements in the amount of R10 million for unspecified relocation costs. Specifically, who or what was being relocated?  In respect of Vote 26: Energy, there was a R2.1 million virement which was a once-off gratuity to the former Minister of Energy. What were the particulars of this payment?

Mr Shaik Emam questioned the large expenditure for Water and Sanitation, as reflected on page 6. Why were there such large amounts for unforeseen expenditure, and what was the emergency? On Vote 17: Social Development, R385.4 million had been taken away from child support and disability. How was this possible? It would seem that a lot of the money taken from virements was going towards the compensation of employees. It was not clear why such large sums of money were being transferred. Why was this not originally provided for in the budget? Almost R1 billion had been spent on state debt costs. Why was the debt cost higher?

Dr C Madlopha commended the allocation towards the sinkholes in Morafong City. Housing projects had had to be abandoned because of the sinkholes. This was one of the most important issues that had been addressed. What were the ‘employee-initiated severance packages’ under roll-overs? Finally, what were the reasons for the declared unspent funds in the National Treasury, under the Jobs Fund? Unemployment was high in the country and jobs were essential. Was under-spending being reduced by declaring the money as savings?

Mr McLoughlin drew the joint Committee’s attention to the recapitalising of SAA on slide 8. After making these payments to SAA, were the funds monitored or were they entirely in the control of SAA? Money was being taken from Defence and the Special Contingency account. Why was this money being taken for the compensation of employees? The number of funded posts were known, as was the retirement age. There was no reason for these amounts to be increased. According to the AENE, it appeared as if every department that under-spent had not spent its budget for the compensation of employees because funded posts had not been filled. The nation already had a hugely inflated wage bill, and it seemed to be on an upward trend.

According to slide 14, the DHA had incurred expenditure from issuing official documents, which had been defrayed by revenue generated from issuing the official documents. Presumable, this expenditure of R1 070.8 billion had been incurred. Why had the income that off-set that not been reflected?

Mr B Topham (DA) commented that virements may be made in terms of section 43 of the PFMA, as well as the Appropriations Act, section 5. In both those pieces of legislation, moving money to fund the remuneration of employees was prohibited, yet this was often done.

Presumably, a contingency amount was not built up in perpetuity. A reserve was set up every year. However, in theory, was it possible to build up a contingency reserve that perpetuated over multiple years? Was it necessary to budget for a contingency every year?

Mr N Paulsen (EFF) who was not a part of either of the present Committees but was sitting-in on the meeting, questioned whether the impact of virements on the departments was known.  For example, on slide 10, Vote 25: Higher Education, money was moved from the compensation of employees. What were the consequences? Was money just moved around without consideration for the impact of these actions?

Mr Maynier requested that Treasury provide a separate note of all the virements that had to be specifically approved by Parliament.

Mr De Beer was concerned with the compensation of employees (COE). The nine provincial treasuries provided a picture of what was happening with regard to personnel. It would be helpful if Treasury could provide a similar picture referring to the national scene. Looking at the wage bill, it may be helpful to have a smaller administration and a bigger operational component, with reference to health. On the Jobs Fund, an analysis on the money put into the Jobs Fund, and the results, was necessary.

National Treasury response

Ms Wilson said that in previous years, the provinces dealt with the national COE budgets. 2017/18 had been the first year where a COE ceiling had been placed on national votes. Across the national votes, a saving of R5 billion had to be made either by employee-initiated severance, or not filling posts. This was monitored monthly. The Treasury could not approve the movement of funds for compensation, only Parliament could do this. The departments that struggled the most were the personnel-intensive ones, such as the Department of Defence. There was a general focus on reducing COE, and some departments were excelling more than others. The drought could not be planned for, which was why the amount had been so high.

Technical and Vocational Education and Training (TVET) colleges received a general subsidy and an amount for compensation of employees. Treasury was not able to do an accurate account of how much must be in each budget, and so by the end of the year, if there was an excess of funds, the funds were then shifted. There was no impact on the salaries of TVET lecturers.

The Chairperson highlighted that the issue was the principle of moving money from compensation to use it for something else. If the money was not moved, it was lost in the system, therefore the adjustments were done in the middle of the year.

Dr Modise agreed that a depreciated exchange rate was supposed to reduce debt, but there were other factors included in calculating the state’s debt costs. If the inflation rate increased, so would debt. Tax revenue had also been much lower, with an estimate of between R40 billion and R50 billion lowere. The effect was that the state had to increase borrowing and thus increase state debt. The interest rate had also burdened the state when it came to borrowing.

It was fortunate that the Director-General of National Treasury was present, as he would deal with the questions regarding SAA and the Jobs Fund, given he was the accounting officer for those matters.

Ms Wilson addressed the question related to the Presidency. The Presidency had identified strategies to reduce their compensation budget. Members who could go on early retirement were identified and these posts would then be abolished. The members would be paid out to go on early retirement.

With regard to the self-financing expenditure, income was paid into the National Revenue Fund (NRF) When someone applied for a passport, a visa or an identity document, the money paid was placed into the NRF. The DHA did not have a trading account yet, and so they could not retain that income. Every year, the DHA claimed the money back and used it to produce the documents. The Treasury, in the self-financing section, indicated only the expenditure.

Mr Blecher spoke on the social grants. New numbers were received monthly from the Department of Social Development. Treasury, the South Africa Social Security Agency (SASSA) and the Department of Social Development maintained three or four-year projection models. The numbers could not be projected with absolute precision, as they were highly dependent on the number of people that decided to come in and claim a grant every month. The number of children who had been taking up the grant had been progressively declining, which was what was driving the under-spending of the grants.

Ms Wilson, responded to Mr Topham about the possibility of a rolling contingency reserve, and said that the national accounts for national reserves were done on a modified cash basis, so a contingency reserve was budgeted for every year. Whatever amount was not used would go into offsetting the deficit, to avoid rolling anything forward.

Ms De Bruyn said that in the adjustment budget, a baseline exercise to identify spending was done. If there was money not spent at the end of the financial year, the Auditor-General would classify it as underspending.

The Chairperson questioned whether the issue of the shifting of COE funds to other services had been adequately responded to.

Mr Maynier requested that his questions in respect to the virements would be responded to in writing, and that Treasury acknowledge his queries.

Mr Blecher said that from his understanding, it was not possible to move salaries from one under-funded department to another.

Ms Wilson said there were four possibilities for virements: the department could do its own virements within the framework of the law, as set out in the PFMA; those that needed to be applied to National Treasury approval; those that the Minister may approve; and those that only Parliament may approve. COE money could be used for only severance packages.

The Chairperson requested the written responses to Mr Tophams’ questions by Tuesday 28 November, before the consideration of the report by the Committee.

The Chairperson said that the Minister had announced plans to use a portion of Telkom shares to bail out both SAA and SAPO. What was the value of the portion that Treasury would use for this bail out? How would government deal with the increasing gap between revenue and the monthly expenditure? She also sought clarify on specific virements.

Ms Wilson said that the Transport virement was the movement of funds between the capital transfers to the Passenger Rail agency of South Africa (PRASA), for rolling stock versus maintenance.

Mr Dondo Mogajane, Director-General: National Treasury, said that Treasury would provide a detailed memo and include the SAA and SAPO issues. Bailing out companies had to be done in a fiscally neutral manner. The government owned about 39% of Telkom, which could be anything between R14 billion and R16 billion. The question was whether all the shares should be sold -- but in that case, what would happen to the surplus?

The plan to address revenue and the shortfall was to remain within a certain expenditure limit and acquire more credit and tax revenue, or to cut budgets. Cutting budgets, however, would affect service delivery, and cutting tax had significant impacts on the economy. Another option was introducing new taxes, such as a carbon tax and a sugar tax.

Mr Maynier notes that the contingency reserve had been flattened to zero. In the wake of the drought in the Western Cape, catastrophic conditions may arise prior to the introduction of the main budget in February. How would the Department deal with emergency requests for drought relief when the contingency reserve had been reduced to zero?

Mr Mogajane agreed with Mr Maynier, and said that there was no option but what was provided for in legislation.

The Chairperson argued that the R10 billion paid to SAA had not made a significant change to its financial situation.

Mr Shaik Emam said the fact that SAA was still debt-ridden was a serious problem and had a negative impact on the SAA’s performance. Was it possible to assist them? SAA believed that after solving their debt issue, they could then focus on becoming profitable.

Mr Gcwabaza proposes marking the issue for further consideration.

Mr De Beer said he would like to engage with experts on the management component of SAA. The Malaysian model was an interesting case study, where bringing in an equity partner had had a positive impact.

Mr Mogajane was confident about the future of SAA and its new management structure.

National Treasury on Budget Vote 7: Adjustments

Ms Silindile Kubheka, Chief Financial Officer, National Treasury, said that the fifth slide would provide clarity on the various projects.

The second slide outlined the classifications between what was allocated to the Treasury versus the statutory accounts.

The third slide shows significant variances: The Integrated Financial Management Systems (IFMS) had a variance of R40 million due to a change in management that had led to the reduction of service providers; R28 million in relation to the Office of the Chief Procurement Officer (OCPO), which was also due to key management changes; R125 million in the Neighbourhood Development Partnership Grant (NDPG); and R44 million for the second quarter from the Jobs Fund (unspent funds).

The virements and adjustments that required Parliamentary approval included: R4.792 billion for the appropriation of expenditure earmarked in the 2017 budget speech for future allocation for the recapitalisation of the SAA; R5.208 billion for the use of funds in terms of section 16 of the PFMA, which was allocated to the vote to defray expenditure in respect of SAA; R22.5 million self-financing expenditure relating to the Emolument Attachment Orders project; and R24 million towards COE.

Slide 7 was a summary of the virements implemented between the programmes.

Ms Laura Mseme, Chief Director: Monitoring and Evaluation, presented the performance information.

Between the first and second quarters, Treasury had achieved 71.51% of its targets. In the second quarter, 74 out of 98 targets were achieved. In annual reports, both achieved and non-achieved targets were reported, however during these quarters, Treasury reflected partially achieved targets as well.

The predominant reasons for under-performance across all indicators were resource constraints which often required the rescheduling of performance and deliveries. Indicators highly dependent on third parties -- for example, the OCPO -- had been delayed due to resource constraints.

Treasury had instituted a stringent programme that monitored performance and updates the mitigation action plans from one quarter to the next to ensure that under-performance was addressed.

Earlier on, there had been a question relating to the money in the Jobs Fund. R6.1 billion had been allocated in grants to fund projects. It had been allocated to 117 approved projects ranging across several economic sectors. The money was public money, and had allowed Treasury to crowd in an additional R8.6 billion from project partners, primarily from the private sector, non-governmental organizations (NGOs) and public entities. This was a matched funding grant, and public money was used towards the creation of jobs. The target was set at 150 000 jobs to be created. To create jobs, both supply and demand had to be integrated. 54 769 vacant permanent positions had been filled. This meant that these were vacant positions which existed within the economy. On the demand side, new jobs were created. A new job was defined as a job that did not exist before in that organisation. To date, 100 097 new jobs had been created. These were sustainable jobs and excluded short-term jobs. 208 449 people had also completed various work training programmes to enable them to take up vacant positions within the economy. In total, the target of 150 000 jobs had been surpassed.

Discussion

Mr Shaik Emam questioned the discrepancy between the under-spending of R44 million in the Jobs Fund, while the Department had far exceeded its target of creating 150 000 jobs. The SAA issue must also be addressed. Was it possible to assist them, perhaps in the form of a loan? Treasury seemed to have under-performed in some key areas -- for example, in the number of monthly expenditure feedback reports (104 instead of 135 reports).

Dr Madlopha questioned the indicators not achieved, with reasons, specifically the ones on tax and public finance. Was it because unrealistic targets had been set, that they had become unachievable? In terms of the Jobs Fund, the work done was commendable, but in respect of the 208 449 people completing training, was employment guaranteed?

Mr McLoughlin pointed to slide 2, where a 0% expenditure on National Revenue Fund (NRF) payments was shown. There was initially a virement which was then adjusted downwards and yet the expenditure remained 0%. In slide 6, regarding the R22.5 million self-financing expenditure, why was it financed by the Department? This was a contradiction in terms. Regarding slide 9, what were the financial implications of failure to achieve targets? Were some of the trained people included in the number of people employed?

Ms Shope-Sithole assured the Director-General that the improvement in the performance of the SAA was a collective responsibility and not just up to management. Just as the newness of the board of the SAA was acknowledged, they must be given space to perform. Treasury must be given time to present on the Integrated Financial Management System (IFMS).

The Chairperson highlighted the issue of the recapitalisation of SAA. The new structures in the organisation were commendable. How was Treasury supporting SAA? Under-expenditure on the Jobs Fund was extremely disappointing. What percentage of the budget was the R44 million that had been underspent?

Mr Shaik Emam requested a breakdown of the jobs created.

Mr Mogajane began with the issue of the SAA. Options must be explored, and Eskom may be a relevant case study. SAA must function and required support. The Department engages with the SAA management on a weekly basis and follows the progress of the R10 billion.  Feedback would be given to both Committees on a regular basis.

A million employment opportunities for young people would be created within three years. Some entities in the Jobs Fund arena were already contributing towards the creation of jobs with other incentives.

A report would be put together on the IFMS.

Ms Kubheka explained that in respect of the Jobs Fund, the R244 million was what was had been budgeted for, versus the actual expenditure. The R44 million represented the actual performance. Certain achievements had had to be met to move forward with the programme and disperse the funds, and because some of these criteria were not met, the budget had had to be realigned. Therefore, there may be under-spending reported for a quarter, but the target had been achieved overall at the end of the year. The over or under-expenditure was aligned with the revised budget drawings.

On the self-financing programmes, the items requiring approval of Parliament were highlighted. If a service provider picked up any illegalities regarding payment, the amounts were sent to the National Revenue Fund (NRF). The Department would not have a direct budget for this.

Mr Mogajane noted that one or two evergreen contracts had been picked up. The nature of such contracts was that one receives a memo a few days before the contract ends, and an extension must be approved. If it was not approved promptly, then the entire system may fall apart. Instead of extending these contracts for three years, they had been extended for one year to ensure that they were concluded and opened the space for new players. There should not be any evergreen contracts in existence.

Ms Mseme commented on the indicator under-performances that had been mentioned. The tax indicator was a good example of challenges articulating indicators that were unpredictable, but was reflective of work streams that were very important to Treasury. The research reports were done in partnership with a third party and were often in response to a key event in the operating environment which led to high variability. Usually, a trend was used to predict the number of targets set. The trend was usually validated at the end of the year. Quarterly targeting may not be precise, but by the end of the year, the target was expected to be complied with.

In terms of the target where 135 reports were to be given but the Department managed only 104, this was an example of the constraints that Treasury was currently under. Unpredictable and challenging operating environments placed huge additional work requirements on several divisions. Often when dealing with these emergencies, the regular work was not completed on time. The work was, however completed. In this case, the reports were drafted, but they were not drafted within the required 15 days. As a custodian of compliance, Treasury was non-negotiable on compliance with indicators. Therefore, late performance was still reflected as under-performance.

The reallocation of resources to areas of under-performance had been successful. It had been recognised that as Treasury was being placed under pressure around resource constraints, the ability to refocus and reallocate skills was becoming more difficult. Service delivery would not be compromised, but the scheduling of delivery of some programmes may be compromised.

The Office of the Chief Procurement Officer (OCPO) was undergoing specific attention to address the issues. The under-performance was mainly within a variance of 10% of the required delivery. OCPO was still a new area of work and they were still working in line with their original plans. In the absence of a baseline, plans were often over-ambitious, and Treasury was working with the OCPO to better align the initial plan to the available resources. Most under-delivery was due to outstanding information from third parties. The question was whether Treasury’s indicators were correctly articulated and whether they must be stopped at a point where they were no longer in the Department’s control. OCPO’s indicators were impact indicators, and thus it was important to include the next level.

Mr Mogajane emphasised the issue of resource constraints. Addressing the 0% increase in fees during the “Fees Must Fall” protests for the past two years had encroached on COE budgets. The challenge was to remain within the budget. This had meant that positions had to be frozen and had led to a decline in morale in the Department which affected the performance. Budget cuts affected the entire functioning of government.

The guiding principle was that an internship did not equate to a job. At least 80% of those trained must be absorbed into the Jobs Fund. The Jobs Fund was not immune to what was happening in the labour market in relation to the economy. The agriculture portfolio in the Western Cape region was affected by the drought. Sometimes project partners must impact the funding of the Jobs Fund, and often this failed. There was no overlap in the number of those trained and the jobs created.

Mr Mogajane promised to provide all the information on the Jobs Fund in a detailed report.

Mr Shaik Emam was impressed with the good work being done, but said that the work was not being made public. This created an impression that nothing was being done.

Ms Shope-Sithole was pleased with the details of the Jobs Fund. People did not account unless they were made to account. The Committee would not relent in asking the Treasury to account continuously.

The Chairperson thanked the members for their contributions and reminded Mr Mogajane that the function of the Committees was oversight over expenditure. Over or under-expenditure were the only two tools that the Committees were equipped with. Money had to be used in the manner which the PFMA prescribed. Over or under-expenditure beyond 2% was an offence, and also spoke to compliance. There was poor contract management. It was shocking that contracts were brought to be signed a day before they were due. It was unethical. There must be strengthened monitoring and evaluation of these contracts. On SAA, it was clear that Treasury was monitoring the situation, but the public view was that the failure of SAA was due to political interference. SAA must be given space to work and be monitored simultaneously.

The meeting was adjourned. 

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