Eastern Cape 2017/18 expenditure outcomes: Provincial Treasury

Meeting report

Introduction by Chairperson

The Chairperson said there would be a series of meetings with the provinces. The meeting with Gauteng had been shifted to a different date. A new sense of optimism was being experienced in the country. Confidence to invest had been boosted. He referred to the special envoys appointed by the President to attract investment. The envoys had to zoom in on the global environment to attract investors.

Although the economic outlook had improved, there were still great economic and fiscal challenges, as could be seen currently in the Eastern Cape. Economic growth was too low to reduce poverty, inequality and unemployment. There had to be improved revenue collection, as expenditure cuts were affecting the fiscus of the provinces. Improved management and accountability were called for, and corruption had to be rooted out. The situation called for a hands-on approach, to spend well. Provinces should not play the blame game when it came to how money provided by the National Treasury (NT) and their own revenue was spent.

On the agenda was a presentation by the NT. The Eastern Cape’s responses to the Committee’s recommendations had been filtered into the basic document the province would use in its presentation. He asked the Provincial Treasury not to repeat figures cited in the National Treasury presentation. He thanked the Committee Researcher for preparing a research document.

National Treasury: Preliminary outcomes of 2017/18 E. Cape expenditure

Ms Ogalaletseng Gaarekwe, Budget Analyst, NT, said medico-legal claims remained the biggest risk for the Eastern Cape’s Department of Health (DoH). There was a need for consequence management of general wrongdoing and medical negligence. The DoH was struggling to make payments on accruals and payables due to medico-legal costs. Approximately 458 health employees had left the sector between March 2017 and 31 March 2018, with the bulk of those leaving being non-clinical personnel. There had been significant under-spending on Compensation of Employees (CoE) and the goods and services budget for the 2017/18 financial year. In spite of an 8.2% increase in the Department of Education personnel budget, educator numbers had remained the same, while learner numbers had declined by 9.2%. Most teachers in the system were above 50 years of age. Slow progress had been made to eradicate school infrastructure backlogs through the Accelerated Schools Infrastructure Delivery Initiative (ASIDI) by the Department of Basic Education (DBE). The NT had facilitated a meeting to obtain a commitment by the DBE and the Provincial Department of Education to work together towards improved spending. There had been poor infrastructure spending and an escalating cost of consultants.

Discussion

The Chairperson remarked that R100 million had to be added to the Eastern Cape budget. The NT had nevertheless stated that spending was under control. Less than 90% had been spent on early childhood development (ECD). Other provinces would be called on the following day in connection with ECD. The NT had stated that the projections were not credible, and he asked about interventions related to that. The medico-legal claims were a concern. The Minister of Health had made a declaration about the matter. It was a problem in all nine provinces. The National Department of Health had to intervene. Learner numbers were decreasing. The province would have to provide details and answers about education infrastructure.

Mr F Essack (DA, Mpumalanga) referred to the throughput pass rate (slide 7). He asked about returns on investments.

The Chairperson commented that the conditional grant for education would be discussed. It would be hard for the NT to answer about that. There would be a debate on basic education in the National Council of Provinces (NCOP). The Basic Education Select Committee would receive a presentation from the Department, which Mr Essack could do well to attend.

Mr Essack asked for the reasons for the under-spending on COE, goods and services. The province was not in the best of health.

Mr T Motlashuping (ANC, North West) referred to the DoH spending preliminary outcomes. He said R22.2 billion had been spent against an adjusted budget of R22.3 billion. The NT was in charge. He asked what had been done in response to the warning signs about the DoH under-spending. Why did the Department have to pay medico-legal claims? Lawyers acting for the government lost cases, and then the same lawyers were used again. There was a lack of educational infrastructure in the Eastern Cape. The NCOP had visited schools in King Williams Town on three occasions, and had tried to address sanitation problems, but nothing had been done and a child had died. It was not sufficient to address the problem of asbestos roofing in schools in King Williams Town, as the whole of King Williams Town had asbestos roofing. Children were still exposed to it at home. The NT had to address human settlement problems holistically. The Committee was told year in and year out that something would be done about consequence management, but nothing was done. He asked if anything was currently being done. There had been poor infrastructure spending.

The Chairperson said that the Committee had asked for a meeting with the anti-corruption task team. Details had to be furnished. There had to be action plans, and details about implementation in terms of what had been delivered against the money allocated. Money had to be spent wisely to prevent service delivery protests.

Ms Gaarekwe responded that under-spending on health personnel was worrying. There was a lack of medico-legal specialists in the Eastern Cape, unlike Gauteng, the Western Cape, KZN or the Free State. More personnel were needed in the rural areas. Most medico-legal claims paid out were mostly for cerebral palsy. Some dated from more than five years previously. It started with patient care negligence, and then cases were lost in court. Medical records were inadequate, due to a manual filing system. The other problem area was legal. Health employees had to abide by the standards set by the office of health standards, which had to check for compliance. The National DoH was rolling out a health information system to provide adequate records, so that cases would not be lost. There was a legal technical committee on finance, where Treasury heads of departments (HODs) sat with the National Department to ask what could be done. There should at least be a unit in each department to deal with claims backlogs, to assess which required mediation. The Minister had stated that the mediation problem with lawyers had to be addressed first.

Mr L Gaehler (UDM, Eastern Cape) commented that he wanted to add to what Mr Motlashuping had said. He was from the Eastern Cape. Two weeks before, he had seen the sorry state that hospitals in the Eastern Cape were in. A young man had been admitted to Umtata general hospital, and had passed away because of negligence. He asked about the consequences for those who neglected patients. He had visited the hospital, not disclosing that he was a Member of Parliament, and it had taken an hour to find out which ward a patient was in. He had had to find the young man himself. There would be more cases like that. The young man’s family would approach lawyers. Many lives had been lost. He asked what the Parliamentary committees were doing. There seemed to be a “don’t care” attitude. Government could create more work in the Eastern Cape tourism sector, but the bad state of the roads in the province prevented that. Work on the road from Elliotdale to the coast had been going on for eight years, and still was not completed. Recommendations were not being carried out.

Mr O Terblanche (DA, Western Cape) remarked that civil claims were out of control. The national Department of Health had to have legal experts. There had to be a legal opinion on matters that could be settled out of court. There were issues that could be settled in-house. It was not advisable for government to take on cases that it could not win. Training, supervision and commitment were needed.

Mr Khaya Ntimbila, NT, responded about the credibility of projections, and said both the national and provincial treasuries lent support to departments for credible projections. Some projections were because money would be needed. R822 million had been added for the Department of Health during the adjustment, and there had been under-spending of R750 million. There were not enough people working on compensation matters in the Treasury to attend to additional related issues. In spite of the additions, the entire funding had not been utilised.

The context was that of the challenges involved in recruiting professionals in rural provinces. The province was still not able to project, despite support given at times by the national and provincial treasuries. There were still project challenges, and problems of consequence management. The question was how to get Accounting Officers (AOs) to hold officials accountable to make credible projections.

Medico-legal legal claims had depleted the goods and services budget for the DoH. Regarding consequence management, the problem was that in spite of the added money, there were still instances of a lack of consequence management as a result of negligence. Legislatures had to find a way to hold AOs to account. Money had been added, but it had not resulted in an improvement in terms of value for money.

The Chairperson remarked that what mattered was how oversight was done. Oversight had to go beyond compliance. It was necessary to go back to the training system in force under the former Auditor-General (AG), Shahid Fakir. Training courses in fiscal oversight at that time had taught what questions had to be asked to go deeper into issues, so that the same stories would not be heard year after year. He would propose that matters be taken to the AG. He had spoken to the AG two weeks before, and also with the Chairperson of the NCOP about that. The NCOP had to take the lead.

E Cape Provincial Treasury on preliminary 2017/18 budget outcomes

The briefing was presented by Mr Daluhlanga Majeke, HOD, Provincial Treasury, and Mr Jongile Mhlomi, Deputy Director General (DDG).

Nationally funded economic development projects had to be equitably distributed across provinces, in particular to under-developed provinces. With the constrained fiscal outlook facing the country, the province would welcome the introduction of conditional grants for economic development projects, especially for departments like Trade and Industry, Economic Development and Tourism. The Committee should note the intensification of revenue collection strategies, which included the appointment of a service provider to identify new sources of revenue and the participation of the province in the review of the provincial equitable share (PES).

Provincial preliminary spending at the end of March 2018 had been R74.594 billion, or 99% of the budget. The under-expenditure of R750.274 million was still within the 2% threshold. Despite the under-spending, preliminary accruals and payables had amounted to R740.063 million, which had gone to service delivery. When the two figures were compared, under-expenditure stood at R10.211 million. Vigorous implementation of the Infrastructure Delivery Management System (IDMS)/Standards for Infrastructure Procurement and Delivery Management (SIPDM) control framework, coupled with site visits, had resulted in an improvement in infrastructure performance.

Discussion

The Chairperson commented that the responses to the Committee’s recommendations had been circulated. He had questions about interventions related to the anti-corruption task team.

Mr Gaehler remarked that an infrastructure grant could not be paid out of the current budget. There were provinces that had inherited a non-existent infrastructure. An infrastructure grant would help create more jobs in tourism. Infrastructure had to empower the whole of SA. Anti-corruption measures had to prevent the loss of money. Cases were being referred to the anti-corruption task team but nothing was done, nobody was held accountable, and the province was losing millions. Medical claims were due to negligence. He asked if Batho Pele principles were being practiced. The attitude of health care workers had to change.

Mr L Nzimande (ANC, KZN) said that medico-legal claims figures were escalating. He asked if there were plans in place. Negligence was the key factor. The situation had to be monitored to get information on how it could be detected. There were unscrupulous actions related to illegal claims. It was a threat to the budget, and there had to be stringent interventions. He asked how the Department attended to the illegal claims in hospitals and clinics. There had to be effective interventions, besides finding money for claims. Did the NT agreed with the explanations given by the province about accruals and payables? He referred to household transfers, and said there was a need for a tribunal. In matters of finance, delays caused a loss of money, and when there was under-spending, money was taken away. Centralised employment affected health expenditure. He asked if employment systems had been beefed up, capacity was being developed, and if there was monitoring in place.

Mr Terblanche remarked that he would have been happy to acknowledge improvement in the Eastern Cape, had it not been that the Committee had recently visited the province and the picture on the ground was different from what had been presented on the day. The Committee had focused on education and health, and had visited schools and a number of basic facilities. He was aware of efforts to get more maths teachers, but there had been a lack of them where the Committee had visited. He asked what was being done to tackle that issue. He was impressed with the economic goals set out, but the Eastern Cape could not attract investment due to the terrible state the roads were in. He referred to expenditure patterns, pointing out that people were pleading for additional funding, but still there was under-expenditure. Capital works spending was not being tackled correctly. The presentation had alluded to good things being done, but the question was how the integrated development plans were linked to the NDP. There were good ideas, but implementation was not up to standard. He was not seeing any consequence management. He was not convinced that everyone was doing the best they could for the good of the people.

Mr M Monakedi (ANC, Free State) pointed out that the constraints to economic growth were lack of skills, poor infrastructure, and land and water issues. It was not clear what was being done to overcome these constraints. Some areas were committed to improving skills and infrastructure, but there were no concerted efforts for a turnaround. He referred to the province’s own revenue. More own revenue was needed to grow the economy. He asked how many jobs had resulted from interventions, and whether the projects referred to were viable. SA was not competitive in the field of nursery projects, as a country like Kenya was. It had to be ensured that nursery projects were self-sustaining.

There were plans afoot to build roads, social services, clinics, hospitals and schools. Learners were not able to get to school when it rained, and there was a lack of access to health services. National Treasury had met with the national and provincial Basic Education departments about the implementation of projects. There was an undertaking to speed up the implementation of school infrastructure projects. The Provincial treasury was too soft about holding people to account. The Committee had visited a school where the parents had had to pay for the building of classrooms. They had waited two years for the building of a block of classrooms. It deepened poverty when the parents had to subsidise the Department.

Underexpenditure on infrastructure had to be addressed. Accruals amounted to R750 million. Service providers were not being effectively paid. It affected the economy of the provinces, especially emerging businesses. Officials would not pay -- they wanted their “palms oiled.” He asked why the number of learners was going down. The Eastern Cape was not doing well in preparing students to move on to tertiary studies. There were health claims that dated far back, which had caused the current spike. The Provincial treasury seemed confident. He asked what was being done.

Mr Motlashuping agreed with Mr Terblanche that the picture presented looked different from what could be seen during oversight. A learning environment conducive to learning had to be created, and the Treasury and departments had to provide support. When the Committee had visited the ECD centre, it had found that practitioners had not been paid for some time. Through the intervention of the Committee, they had been paid the next day. People were not being paid, for several months, and then they were expected to deliver quality education. The problem did not reside with the learners. There was no lack of intellectual capacity. People were not being resourced to advance education. There was a problem with officials. There could not be excuses based on what had been inherited from the previous regime. There was dilapidated infrastructure inherited in his region (North West Province), Western Transvaal, Bophutatswana and Gauteng. The presentation had shown that economic growth in the Eastern Cape was 0.6%. Stats SA indicated that growth in the North West Province during the third and fourth quarters had been 3.1%. North West Province differed from the national picture.

Mr M Shabangu (EFF, Free State) said that teachers were resigning because of problems with promotion. When the head was sick, the whole body would be sick. In education, the head was sick. He was from KwaKwa, where there were 295 schools, and still the Free State produced the best student passes. Teachers had to be given incentives. It had to be asked why teachers went to other provinces. They would be better off in Johannesburg in respect of promotion. Learners were being taught under trees in the Eastern Cape, and still there was unders-pending. Unqualified officials were being hired. The President had insisted that service providers had to be paid on time.

Mr Gaehler remarked that it was a pity that the political representative was not present, only administrators. There were major problems, like the decline in learner numbers, and transport problems. Schools were without books. The National Treasury had to bring education up to par through providing funding in all provinces. Money was still going into the yellow fleet which had to maintain roads, but it was not happening. He asked about the R418 million owed to municipalities, and how that would be dealt with. The Magwa and Majola tea production estates were operating at a loss, yet money was still being transferred to them. He asked if money was still being transferred to Kucha, which had been in operation since 2004, and had to be able to stand on its own. Millions still went to Macadamia nut growing.

There was a skills shortage. There was skills training in the Eastern Cape, but the government was still issuing tenders to the same service providers. There had to be a continuous intake of skilled people. There was a tendency to use the same service providers for ten or 15 years. The emerging sector suffered when only a few favoured service providers benefited from government money. There was a high rate of corruption in the Eastern Cape. No one was held accountable.

Mr Majeke responded about the anti-corruption task team. There had been engagements with the Special Investigating Unit (SIU) and the Hawks, and the NT’s investigating unit. Three cases that were confidential had been referred to the SIU. The Education and Health Departments had to act, having seen the Provincial Treasury recommendations. The officials involved could do better.
A framework was being developed. Some departments were doing forensic investigations, but did not inform the Treasury. The Treasury would partner with the Office of the Premier.
The Education Infrastructure Grant had been spent 100%, but there had been under-spending on ASIDI. There was a lack of proper integration. The Treasury had engaged with Basic Education for integration and coordination. There was an education transformation plan for the rationalisation of schools, and a learner attainment improvement strategy. Schooling on Saturdays had been introduced. There had been benchmarking with the Free State. Maths and science teachers were being trained, to counteract the movement of teachers to urban areas.

The Provincial Treasury was citing R740 million for accruals and payables, whereas the National Treasury had cited R750 million. Accruals and payables had been rolled over because of late invoices. The NT had picked up on it only when a rollover was requested. He referred to the non-sustainablity of the Majola tea production estate. Equity partners were needed. All stakeholders had to be involved, including the workers.

Mr Mhlomi responded about medical legal aid. It was a sector issue. There would be legal reform through the NT, and strategies had to be developed to deal with medico-legal claims. The problem was more visible at the maternity clinics. The Treasury had visited 18 hospitals, and it was evident that there was a shortage of nurses. Equipment was not being serviced on time. A long-term solution was called for at the provincial level. The Department had appointed an Ombudsman as a short term solution. The Ombudsman could assist in gathering information for evidence in court. The problem had to be solved at the national level. The Treasury welcomed the ECD interventions by the Committee.

The spirit of the Public Finance Management Act (PFMA) had changed over time. In 1999 and prior to that, there had been a rule-driven exchequer account. The first Minister of Finance, Mr Trevor Manuel, had proposed that the PFMA be decentralised. A decentralised environment had been created in 1998. Previously all tender and payment systems were located in the Treasury, but the later approach was to decentralise, and to allow managers to manage. The emphasis was on the spirit of output, and not so much on compliance. Managers had to be capable to run financial matters. The Eastern Cape had not yet graduated in that respect. There was a lack of maturity in the Eastern Cape. There had to be an understanding of first things first. Rotation of suppliers was a basic supply chain management (SCM) issue. Managers had to centralise approval of SCM matters, overtime and arrears payments.

The Chairperson commented that time was running out, and asked the Treasury to reply in writing to unanswered questions. He asked the National Treasury to comment.

Ms Gaarekwe referred to convergence in terms of under-expenditure. The Treasury agreed about the R740 million, but argued that accruals had to be cash-based. A department had to be able to show that it would be able to pay if it was to be granted a rollover into the next financial year. There was R302 million in accruals for CoE. In terms of regulations, unspent personnel funds could not be rolled over, unless the province gave the department additional PES funds, but then it would not be a rollover, but would be reflected as additional funds. There had been over-expenditure on transfers, and under-expenditure on goods and services. The rollover requested would then be for capital. In the case of conditional grants, if money was not committed at the financial year end, it would be surrendered to the National Revenue Fund. Departments would get money back, through it being surrendered to the Provincial Revenue Fund. Provinces submitted rollover requests at the end of April for money sitting in the provinces. If money did not flow to the provinces, the national department could apply for a rollover on behalf of a province, but there had to be proof that the money was committed.

The Chairperson asked a member of the Auditor-General of South Africa (AGSA) to comment.

Ms Zanele Keto, Stakeholder Liaison Manager, AGSA, responded that Members had raised issues that were in line with what the AGSA had raised in 2017. In the DoH, there were issues related to pharmaceuticals, medication and hospitals. She hoped that AGSA’s recommendations would be taken care of.

The Chairperson remarked that on account of elections in the following year, there would be limited time available. The national Budget would be tabled, the fiscal framwework would be worked through, as well as the division of revenue, and then the House would adjourn. It might be necessary to stay on until 10 December in order to call the Eastern Cape back to reply about issues raised in the meeting. Success depended on a continuous investment in excellence. It did not matter which terrain or which environment one was in -- it was cross-cutting.

The Chairperson adjourned the meeting.