Appropriation Bill 2018: input from Public Service Commission; Parliamentary Budget Office

Standing Committee on Appropriations

09 May 2018
Chairperson: Ms Y Phosa (ANC)
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Meeting Summary

The Public Service Commission (PSC) gave its comments on the 2018 Appropriations Bill to the Committee. The presentation covered the PSC’s areas of oversight and the outputs of its oversight function. The PSC acknowledged that it was not a financial institution, but was the custodian of good administration and would focus its comments on that aspect.

There were four key messages in the presentation. The first was that the PSC reiterated the need to deal with the duplication of functions amongst departments because this affected overall expenditure. The second was that at the institutional level, a harmonious political and administrative interface was critical for sound public governance. The alternative was that it would become a breeding ground for maladministration and financial mismanagement, as indicated in the recent cases involving Eskom, Life-Esidimeni and the South African Broadcasting Corporation (SABC). The third was that departmental oversight of state-owned enterprises (SOEs) and agencies needed to be tightened up, as the Boards governing these bodies had been shown to be breeding grounds for inefficiency, corruption and having an impact on budgets. The fourth was to highlight the risk that non-payment of invoices created for small, medium and micro enterprises (SMMEs) and intergovernmental bodies. This had the potential of crippling the financial health of some government institutions. 40% of municipalities were on the verge of collapsing and a big part of the reason for this was the money they were unable to collect from other government bodies.

The PSC referred to a noteworthy gap in the legislative framework, which provided reporting requirements and guidelines for departments, with particular reference to the management and use of consultants. This created a loophole in respect of enforceability. It spoke to strategies available to improve administration practice significantly in the public service, on organisational design and the re-designing of organograms, on capacitating the departments, and on financial misconduct. It also spoke to the ring-fencing of the budget to deal with fee-free higher education. The PSC said a fine balancing act would be required to manage performance and service delivery against the expenditure cuts across all spheres of government, and the 2016 compensation ceiling arrangement of R15 bn to be cut in 2018/19. Cuts in the national government expenditure would definitely demand initiative, financial planning and management.

Members wanted to see all government departments complying with the law in respect of organograms and the payment of invoices within 30 days. They stressed the importance of the contract management of consultants and the concomitant training of departmental officials, but also acknowledged that there was a gap in the public service regulations on how contracts must be managed and monitored. They were concerned with the long time frames for approval of organograms by the Department of Public Service and Administration (DPSA), and with supply chain management challenges. They recognised the need to ensure smooth relationships between the executive authority and heads of department, as any misalignment would have a negative impact on service delivery.

Members asked if the presenters were implying that there was an underlying risk that basic education would be compromised by fee-free education. Had the PSC looked at the scale of accruals of departments and what impact it had on subsequent years? What had it found in its inspection of the border posts, and was the Border Management Authority (BMA) feasible? They wanted clarity from the PSC on whether its observations on the BMA were about improving the BMA or about whether it should exist, because the objective for the formation of the BMA was very important, as South Africa had very porous borders.

Meeting report

Public Service Commission (PSC) Overview

Ms Phumelele Nzimande, Commissioner: Public Service Commission (PSC), said the PSC was not a financial institution, but was the custodian of good administration. There were four key messages in their presentation. The PSC reiterated the need to deal with the duplication of functions among departments which affected overall expenditure, in the light of the comments of the Presidency about inefficiencies and wasteful expenditure in government, and therefore the need for a reconfiguration of government and the reduction of the Cabinet.

The second message was that at the institutional level, the political and administrative interface was critical for sound public governance. The alternative was that it would become a breeding ground for maladministration and financial mismanagement, as in the recent cases involving Eskom, Life-Esidimeni, and the South African Broadcasting Corporation (SABC).

The third message was on the departmental oversight of state-owned enterprises (SOEs) and agencies, which were governed by Boards. The Boards had been shown to be breeding grounds for inefficiency, corruption and having an impact on budgets, which highlighted the fact that oversight by departments needed to be tightened.

The fourth message was to highlight the risk that non-payment of invoices to small, medium and micro enterprises (SMMEs) and intergovernmental bodies created. This had the potential of crippling the financial health of some government institutions.  40% of municipalities were on the verge of collapsing and a big part of the reason for this was the money they were unable to collect from other government bodies.

Ms Carmen Domingo-Swarts, Director: Programme Evaluation PSC, spoke to key indicators monitored by the PSC.

She said the Financial Disclosure Framework (FDF) had been introduced to safeguard public confidence and manage public servants’ conflict of interest. The framework facilitated public scrutiny and all senior management service (SMS) members were required to disclose the particulars of all their registrable interests. In terms of compliance with the Financial Disclosure Framework, there had been a decline in the number of departments that had achieved a 100% submission rate by the end of the respective reporting financial year. The non-payment of suppliers’ invoices remained a challenge, and stifled economic growth and job creation in the SMME sector. Government departments were still dealing with a lack of capacity or competencies to deliver on their mandates, resulting in a reliance on the use of consultants. She added that there was a noteworthy gap in the legislative framework, which provided reporting requirements and guidelines for departments, with particular reference to the management and use of consultants, and this created a loophole in terms of the enforceability.

She then spoke to strategies available to improve administration practice significantly in the public service, on organisational design and re-designing of organograms, on capacitating the departments, and on financial misconduct. The ring-fencing of the budget to deal with fee-free higher education was a positive response to effectively and efficiently deal with this matter. However, it could be seen as a potential risk, which should be monitored by the Committee in terms of the long-term sustainability of the budget cuts across departments compared to service delivery and performance, including the provision of Basic Education.

A fine balancing act would be required to manage performance and service delivery against the expenditure cuts at all spheres of government, and the 2016 compensation ceiling arrangement of R15 bn to be cut in 2018/19. Cuts in national government expenditure, where the impact would mostly be felt by large programmes and transfers to public entities, would definitely demand initiative, financial planning and management. The issue of duplication of functions between departments was critical in the current budget-cutting environment. A start would be to address the organisational design of departments, with specific focus on the funded versus unfunded posts, appointments against unapproved organisational structures, and the duplication of functions across government.

The annexures covered budgets versus performance for national departments (Annexure A); Financial Misconduct (Annexure B); Performance Management (Annexure C); Precautionary suspensions (Annexure D); and Utilisation of Consultants (Annexure E).

Discussion
Mr A McLoughlin (DA) asked if, in the figures relating to slides 8 and 9, it was only the Department of Environmental Affairs that had not submitted its annual report, or whether it was across the board. He asked why the PSC foresaw a negative impact on performance and service delivery if the duplication of functions was removed. He asked if the 99% compliance, in slide 16, related to the 72% that had submitted. Were the fees owed to the state attorney only for legal fees, or did it include money awarded in cases that the state had to pay out via the state attorney?

Ms M Manana (ANC) asked if the figures in slide 19 were for the rollover of invoices only, or whether they related to capital expenditure on projects. She had learnt that the Department of Water and Sanitation (DWS) owed far more than the figure in slide 21 -- that the DWS owed over R2 bn at the end of the financial year. She wanted to know the names of the departments where the head of department (HOD) and Director General (DG) needed to be called out. She wanted more clarity on what the correct form of action was -- to work off the approved organogram, or off a forthcoming but unapproved organogram. What was the cause of the loophole in the 2016 public service regulations?

Ms D Senokonyane (ANC) agreed with the presenters on their view of SOEs, and said that on the whole there was no benefit to the country from them.  There was no evidence that departmental staff were being trained by consultants on the job. Was there evidence of the monitoring of consultants? Were the presenters implying that there was an underlying risk that basic education would be compromised by fee-free education?

Mr N Gcwabaza (ANC) asked if the PSC had looked at the scale of accruals of departments and what impact it had on subsequent years.
 
PSC’s response

Ms Nzimande said that with expenditure cuts, it was vital that the duplication of functions be addressed while minimising the impact of the cuts on performance and service delivery.

On the state legal office, she said the monies were for the legal fees due to the state attorney, and excluded any awards.

She would share the PSC’s report on consultants with the Committee. The report would be useful as a resource.

She agreed with comments that invoices should be paid within 30 days. The big issue was that administrative machinery was being put in place for something that was not uniquely an administrative problem. The nub of the matter was corruption, where state officials wanted to be paid a kickback to process payments. The officials themselves transgressed the procurement processes, asking service providers to do work and when the officials were caught out, the issues landed in courts. She was hoping that the courts would rule that the individuals themselves would have to pay in these cases. The PSC was recommending that the issue be elevated to the highest levels in the presidency.

Ms Domingo-Swarts said the presentation reflected the reporting year, but the figures were for the previous financial year. The compliance deadline was the end of April, and compliance rate was 99% at that time. It reached 100% after that deadline date. This meant the figures could not be compared.

On the rollover of invoices, she said that these were invoices for quarter 3 which needed to be paid in quarter 1 of the following financial year. The figures were for invoices, not for capital projects. The information was for quarter 3 only and not a cumulative figure, so the Committee Member was right to say that the figure was actually much bigger.

She did not have the list of departments that had been summonsed. The list included the provincial level as well.

On organisational redesign, the departments had said that the Department of Public Service and Administration (DPSA) took too long to confirm organograms, and had proceeded to appoint people based on the new structures which had not yet been approved. Some departments were wont to review and change their structures on an annual or biannual basis because of a Cabinet reshuffle, for example. The approval process needed to be managed and regulated.

On the legislative gaps in the public service regulations, she said they had done a report and she would share it with the Public Service Commission and Treasury. The loopholes were gaps that departments would take advantage of.

The ring fencing of fee-free educations funds was a potential risk because there had been lots of budget cuts, and the PSC was trying to make sure that the playing fields were level between the two areas of higher and basic education.

She said the PSC had not looked into the aspect of accruals at all. It was not au fait with economics and finance matters, and had not ventured into too much detail on those aspects of the Bill.

On the 30-day payment of invoices, Ms Nzimande said there was the risk that many people who were owed money by the government might demand their moneys with interest. The only factor stopping this from happening was the fear of losing future business with government.

The Chairperson said she wanted information on the five HODs’ defaulting departments for the non-payment of invoices. She asked what the PSC had found in its inspection of the border posts, and whether the Border Management Agency (BMA) was feasible. What were the main challenges that the PSC had picked up in its engagements with the executive authorities? She wanted more information on the statement that departments’ strategic plans and APPs were not enough of a basis to make real strategic trade off decisions. Should APP formats be changed? She wanted an explanation of the compensation ceiling of R15 bn mentioned in the presentation.

Ms Senokonyane asked the PSC what the success rate was of their mandate to advise and recommend, and which recommendations were binding on the executive and administrative head.

Ms Manana asked from which organogram departments could work -- the approved or the still to be approved organograms -- as there had to be consequences if they were working from a non-approved organogram. She acknowledged that corruption was rife, but said that the SMMEs were just as guilty for taking part in it.

Mr McLoughlin asked how a breach of contract gap could be bridged if there was no valid performance contract entered into by senior management in the first place. On precautionary suspensions, he said the number of people had doubled from the previous year’s figure. Why had this happened? The cost of suspensions (slide 63) had grown immensely, yet the PSC had indicated that there was no correlation between the number of suspensions and the cost, and he could not understand that there was no correlation.

Ms Nzimande referred to the challenges in the relationship between the Executive Authority and the HODs, and said the PSC had documented the challenges in its report. The PSC’s experiences in compiling the report had led to a recommendation in the National Development Plan (NDP) that there should be a head of administration in the presidency to manage performance contracts. At the moment, that head of administration was not yet in place. Another recommendation was to introduce a programme of orientation, where executive authorities with their political strategy and director generals with their technical expertise could understand how the relationship between the two worked. Sometimes the issue was just that there was a clash of personalities, as the relationship between the two required a nuanced relationship.

There were concrete instances where the PSC recommendations had been taken seriously – for instance, on the law preventing public servants from benefiting in state contracts. She said one could not give HODs a contract of less than five years.  The PSC had had a mixed success rate, but increasingly the PSC recommendations were binding, based on the outcomes of court cases.

On Ms Manana’s question, she said the approved organogram had to go.

Ms Domingo-Swarts responded on the BMA, and said the PSC was highlighting only the challenges to the departments. The inspections had found that there was poor process flow and movement control, and a lack of coordination between departments. The challenge was to get departments to do what they said they would do.  The BMA was supposed to have the authority to do the coordination. One needed to find out the fundamental reason why people were not engaging well with one another. The establishment of an agency would not automatically fix the problem. It needed a detailed assessment of the obstacles, rather than the establishment of an oversight body. 

She said the R15 bn referred to the previous projection of a R15 bn ceiling on compensation. This was a decision made four years ago which would have a further impact on the budget.

On the increase in precautionary suspensions, she said some departments did not have the capacity to deal with some of these issues and had approached the DPSA for assistance to manage them. The increase in costs was because more of the suspensions involved senior management level officials.

Regarding the correlation of costs, the figures did not include all the costs involved. For example, they did not include the overheads and benefits and the cost of placing someone in an acting position in a post. The figures provided were just a snapshot and the issues were much bigger.  

On the organograms, the Chairperson said the turnaround from the DPSA took a long time and they needed to be engaged and to prioritise their work. She also acknowledged the capacity challenges of the DPSA.

Ms Nzimande said that the department was the executive authority for the organogram, but that they had to consult with the DPSA to seek its approval. If the department was concerned over long delays at the DPSA, it could write a letter accompanying the organogram saying that if it did not hear from the DPSA after a certain amount of time, it would be going ahead with its implementation. In law, the department did not need the DPSA’s approval to go ahead, but it was better to consult first.

The Chairperson said assumptions were problematic and that written endorsement needed to be received by the department. She asked the Treasury official if the joint health action plan and the presidential review commission for SOEs were in place, and whether the government was on track with regard to the R15 bn mentioned in the conclusion.

Mr Mark Fletcher, Chief Director: Health, National Treasury, said that the performance data given by the PSC in the annexures was interesting, and asked it from where the data had been sourced.

He said the joint health action plan was proceeding but that it was not going as well as had been hoped. The engagement with the Department of Health (DoH) was not strong thus far, and the DoH needed to report more often. The plan was had not been costed specifically, and that might be an issue.

The R85 bn in budget cuts that had been made had put all departmental budgets under pressure, and because they had been made in a short time, the concern was whether departments were on the right side of a fine balancing act. The main budget was more solid and credible, but budgets -- especially provincial budgets -- were under pressure, so efficiency gains were important.

He did not have enough information to comment on the presidential review commission for SOEs. There had been discussion on the rationalisation of departments, and Treasury had prepared an input for such an eventuality because of duplication and because there was potential for rationalisation. 

Mr M Maswanganyi (ANC) wanted clarity from the PSC on whether its observations on the BMA were on improving the BMA or on whether it should exist, because the objective for the formation of the BMA was very important, as South Africa had very porous borders.

Ms Nzimande replied that the PSC’s involvement was purely observations of the risks involved. It was not in the PSC’s domain to say that the BMA should exist or not, as it only monitored and evaluated the organisation of public administration. The PSC flagged what it saw was risky -- this could be the financial impact, or it could be the coordination of the various departments involved.  The risks were flagged so that those who made the decisions could benefit from the PSC’s contribution.

Ms Domingo-Swarts said the information in the annexures came from annual reports.

Adoption of minutes

The Committee discussed and adopted the minutes of previous meetings held between 13 March and 4 May 2018.

The meeting was adjourned.   

 

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