Documents handed out: Committee Research unit: Comment on expenditure outcomes (to Members only)
National Treasury reported that the major risk in the Limpopo Department of Health (DoH) was continually high accruals. In Education there was a high attrition rate of educators, but still a problem with excess educators, and inefficient systems for personnel and records management. Cooperative Governance and Human Settlements delayed implementing housing projects, and R150 million was lost. There was slow delivery of infrastructure and challenges with implementing agents.
National Treasury pointed out that Northern Cape provincial EXCO had placed its DoH under Section 18 of the PFMA. There were constantly increasing medical negligence claims. Operationalisation of new health facilities presented serious challenges. DoH had to improve its planning and budgeting for Compensation of Employees (CoE). Northern Cape depended heavily on Independent Development Trust (IDT) to implement its Health and Education infrastructure projects and monitoring of projects was a big challenge.
Northern Cape Treasury reported that the Northern Cape economy was boosted by the Oceans Economy and the Renewable Energy Programme. Northern Cape faced challenges of high levels of non-compliance to supply chain management (SCM) prescripts, which led to large irregular expenditure. The bulk of irregular expenditure in the DoE and DoH was caused by implementing agents such as Public Works and IDT. The fiscal position would continue to improve due to measures implemented by the Provincial Treasury as it would improve control over appointments in Health and Education. Underspending of conditional grants related mainly to rollover requests. There was underspending in DoH and DoE for compensation of employees. In the DoE, increased learner numbers required the appointment of additional educators.
Limpopo Treasury reported that spending improved from 97.8% in 2016/17 to 98.7%. Special economic projects were launched in Musina and Tubatse. The proposed investment value for Tubatse was around R4.2 billion, and 2000 jobs could be created. R100 million was allocated for broadband connectivity. Underspending in the province was mainly on goods and services and capital assets in DoH, DoE and Public Works. Revenue collection challenges included delays in accounting for revenue collected and undercollection of patient fees. The province sustained a growth rate of 1.2% which was a recovery from the 2016 negative growth of -1.6%. Personnel numbers were ring-fenced at 124 000. Infrastructure spending improved due to monitoring by the provincial infrastructure oversight body.
Members asked National Treasury about condonement. Members had remarks and questions about irregular expenditure, especially in the Northern Cape; condonements; the many Acting HODs in the Northern Cape Treasury; vacancies in departments; service delivery delays; the Section 18 intervention in the Northern Cape DoH; VSB Bank scandal and investments; underspending and rollovers; non-compliance with SCM prescripts; matric pass rates in Limpopo; illegal mining in Limpopo; site servicing; hospital operational costs; learner increases in the Northern Cape; Special Economic Zones in Limpopo, and consequence management. The DA expressed disappointment with Northern Cape's performance. The ANC took strong exception to a remark by the EFF that there was non-professionalism in government departments due to ANC cadre deployment.
The Chairperson welcomed the MECs for Finance from the two provinces. National Treasury would present expenditure outcomes for the two provinces. The provinces would explain what was happening with regard to fiscal position, economic growth, and fruitless and wasteful and irregular expenditure. The Committee had to report to Parliament and to the people.
National Treasury on 2017/18 provincial expenditure outcomes: Northern Cape and Limpopo
Ms Ogalaletseng Gaarekwe, National Treasury Director: Intergovernmental Relations, said the major risk in the Limpopo DoH was the continually high accruals. Medico-legal claims were rising, with a contingent liability of R3.6 billion. In Education, there was a high attrition rate for educators, but still a problem with an excess of educators. There were inefficient systems for personnel and records management. In Cooperative Governance and Human Settlements, delays in implementing housing projects led to R150 million lost in 2017/18. Total accruals and unrecognised payables had serious implications for emerging businesses. There was slow delivery of infrastructure and challenges with implementing agents. Northern Cape DoH had to be placed under Section 18 of the PFMA by the provincial EXCO. There were constantly increasing medical negligence claims. Operationalisation of new health facilities presented a serious challenge. Personnel expenditure planning had to improve in Education. Northern Cape depended heavily on IDT to implement Health and Education infrastructure projects, with monitoring of projects a main challenge. Termination of contracts was a concern.
The Chairperson noted that a letter was sent to each province to provide a response to the Committee's previous recommendations. The response was to form part of the presentation. The Committee had to report on this as a continual exercise. He asked the Limpopo Finance MEC to share about best practice in Limpopo. He asked how long the DoH in the Northern Cape would remain under Section 18 of the PFMA - what was the forecast for Northern Cape DoH? The intervention had been terminated, but the Department was kept under Section 18. The expenditure ceiling had an impact on budgeting priorities like the Human Settlements Development Grant; housing; water, and electricity. He had heard a radio announcement about planned development at Gamsberg in the Northern Cape, which was heartening. The province had own revenue of R300 million, which had to be spent wisely.
Northern Cape Treasury on 2017/18 expenditure outcomes
Mr Mac Jack, Finance MEC, and Mr Thami Mabija, Acting HOD presented. The provincial economy was boosted by the Oceans Economy and the Renewable Energy Programme. Solar energy attracted investment of R6 billion, of which 40% was earmarked for local content. SMME development was a priority. Northern Cape faced challenges of high levels of non-compliance to SCM prescripts, which resulted in a large amount of irregular expenditure. The bulk of irregular expenditure in the DoE and DoH was caused by implementing agents, Public Works and IDT. The provincial fiscal position would continue to improve due to measures implemented by Provincial Treasury. It would improve control over appointments in Health and Education. Underspending of conditional grants related mainly to rollover requests. There was overspending on CoE in the DoH and DoE. In the DoE, increased learner numbers required the appointment of additional educators.
Limpopo Treasury on 2017/18 expenditure outcomes
Mr Rob Tooley, Finance MEC, and Mr Gavin Pratt, HOD presented. Limpopo's spending improved from 97.8% in 2016/17 to 98.7%. Special economic projects were launched in Musina and Tubatse. The proposed investment value for Tubatse Special Economic Zone (SEZ) was around R4.2 billion, and 2000 jobs could be created. R100 million was allocated for broadband connectivity. Underspending was mainly on goods and services and capital assets, in DOH, DoE and Public Works. Revenue collection challenges included delays in accounting for revenue collected and undercollection of patient fees. Unspent Health funds were due to slow spending on the Health Facility Revitalisation Grant. There was also underspending on transfers and subsidies due to, inter alia, unfinalised litigation cases. Limpopo sustained a growth rate of 1.2%, a recovery from the 2016 negative growth of -1.6%. Personnel numbers were ring-fenced at 124 000. Infrastructure spending improved due to monitoring by the provincial infrastructure oversight body.
Mr L Nzimande (ANC, KZN) asked the Northern Cape to comment on Treasury Guidelines for condonement. If it was found that no official could be held liable, the amount would fall away. He asked for more clarity. The question was under what circumstances the guidelines would be adhered to. He was skeptical about the fact that the matter could be set aside if no culprit was found. Public funds were being dealt with. A closer look at the guidelines was needed. He asked National Treasury also to comment. He referred to the succession of Acting HODs appointed to the Northern Cape Treasury. If the apex position was not stable, the rest could not be stable. There had been a succession of six month terms at the top. It was not normal. He asked what caused the movement, whether it was lack of capacity or corruption. The Acting HOD had referred to outsourced support, as an intervention to deal with capacity across departments. There had to be clarity about the nature of expertise required to build capacity through outsourcing, how long it would take, and the terms of reference. He asked if delays to service delivery through conditional grants were due to suppliers not being paid, or having to procure supplies outside of the province. He asked who had been responsible for the delays. Was there capacity to spend the 40% of the R6 billion solar energy investment on local content? He asked about progress in moving Northern Cape DoH out of Section 18. It seemed as if this was permanent. In Limpopo the Section 18 had already been in effect for three years. The Limpopo MEC had mentioned SAPS had been called in to act against illegal mining last year. He asked for detail about arrests and syndicates uncovered.
Mr T Motlashuping (ANC, North West) told Limpopo Treasury that the work done to remove the Section 100 administration in Limpopo, was appreciated. North West was not the first to be placed under Section 100 administration. It had led to improvement in Limpopo. He asked about the land deal where land valued at R8 million was acquired at an extravagant price. It was the mandate of the Committee to follow the money and to ask who was responsible. He asked about any Limpopo investments in VBS Bank. In his province, North West, amounts had been taken from Water Services and given to VBS Bank. Public funds were involved.
Limpopo DoH had the highest underspending at R236 million with Education underspending at R199 million (according to the Committee research document). This had to be explained. More money was asked for, but there was an inability to spend. There was underspending of R155 million on roads.
Northern Cape spending of conditional grants was not as expected, and departments applied for rollovers year in and year out. APPs and strategic plans were developed, but there was inadequate spending. He asked National Treasury to comment on the reasons for not spending. Social Development underspent by R31 million, and Cooperative Government, Human Settlements and Traditional Affairs (CoGHSTA) by R91 million. The Provincial Treasury underspent by 8.1%. In the Department of Roads and Public Works, the budget was revised upwards from R4.2 billion to R4.6 billion, and there was 100% spending, which was commendable.
The CoGTA Minister had stated that there had to be a clause in the performance agreements of municipal managers, that if there was insufficient spending, there would be consequence management. He was skeptical. They were tired of the Hollywood tactic where so many officials were in acting positions. When posts were vacant, there had to be processes to fill those vacancies. He referred to the R1.2 billion condonement that was declined and asked what had caused this irregular expenditure and how the department was affected. Consultants were appointed in Health to investigate condonement. He asked for the amount spent on consultants. Non-compliance with SCM principles had led to irregular expenditure of R2.6 billion. He asked who had conducted investigations and if the individuals involved were charged.
Mr M Monakedi (ANC, Free State) noted that sufficient numbers of learners reached matric in Limpopo, but the matric pass rate was low. He asked for contributing factors and how DoE and National Treasury could turn this around. Delivery of housing units were on track, but servicing of sites stood at only 59.5%. People who could not obtain houses through RDP or the bank had to be able to build their own houses. Northern Cape was building state of the art hospitals such as Kimberley, but there were challenges with inadequate operational budgets. Money to build was received, but Treasury did not check if there was money to operate the hospitals.
It was an elaborate procedure to appoint consultants to investigate irregular expenditure, when it was due to non-compliance with SCM principles. The Provincial Treasury had to set an example through the actions it took. He referred to the overexpenditure in the Northern Cape, where more teachers had to be appointed because of an increase in learners. He asked how the increase in learners had come about, and what the province was doing about it. The Limpopo economy had grown by 1.2%. Other provinces could learn from the interventions that had made it possible. He asked if CoE was increased through keeping posts vacant, and if that could affect service delivery. He asked about progress made with the establishment of SEZs. Some years before there were teams that had to ensure that investment was attracted. He asked if more project managers were needed. Limpopo had to assist Tubatse municipality with planning. There was lawlessness and anarchy. He asked how it happened that expired drugs had to be returned, and if that was due to a surplus being supplied so that someone could make money. He asked about monitoring of this and actions taken to identify who was responsible. R800 million was overcommitted by the Road Accident Fund (RAF). He agreed that municipalities had to be taken to task about the VBS Bank scandal.
Mr O Terblanche (DA, Western Cape) commended the positive feedback received from Limpopo about progress made. He was disappointed with the Northern Cape performance. There had to be feedback on interventions from the Select Committee on Local Government. He found the Northern Cape presentation to be vague and futuristic. The Committee had to be told what was being done about outcomes and the results of the interventions. There was a general trend to spend money on personnel, and to underspend on goods and services. There were always SCM challenges, especially those that were infrastructure related. The Committee wanted to see money well spent. He was concerned about the R10.5 billion irregular expenditure in the Northern Cape. There was progress in Limpopo, but some problems still persisted. He agreed with his colleagues about the underperformance of implementing agents and underspending on infrastructure.
Mr M Shabangu (EFF, Free State) commented that "agteros kom ook in die kraal" (even the rear member of a team of oxen would get into the kraal). In English it was said that faith without deeds was death. The two provinces were good in theory but not in practice. The persistence in having acting HODs was a bad practice. If there was a problem, there had to be advertising. He asked which schools were overspending. There were still mass sized classes, a child had died from falling into a latrine pit, and still there was underspending. To grant 24% to Education was an insult. Education needed a larger budget. The Free State was setting an example through being number one in education. SCM was cause for concern. He asked what was done to those responsible for irregular spending, whether they were fired or put into jail. Consultants were costing a lot of money; their own people should do the work. Money lost by CoGHSTA had to be explained. Managers were not to receive performance bonuses. Children were not being transported to schools, and yet there was underspending. People in the former homelands were living under terrible conditions. Improvement was promised but unprofessional people were hired, because of cadre deployment.
Mr Motlashuping called for order. It was unacceptable to make allegations of cadre deployment, if it could not be proved beyond reasonable doubt. The ruling party employed capable people. He reminded Mr Shabangu that the Northern Cape was never a homeland.
The Chairperson agreed that when such statements were made, detail had to be provided. He told Mr Shabangu that there were no mud schools in the Northern Cape. He had travelled in the province for 19 years and visited all the towns, and could testify to that. In every province there are excellent teachers, and some who are not so good. The same applied to public servants. Still all provinces could do better. Remuneration for consultants was recorded in the Annual Report of departments. He agreed that one's own staff should be trained to do the work. The title of a book about Virgin Atlantic Airlines was "Just Do It". The current budget did not have resources to do everything. The President had abandoned the CEO initiative and now there was the envoy initiative, to attract investment. It should also be done in the provinces.
Northern Cape response
Mr Mac Jack, Finance MEC, replied about Acting HODs. The last permanent HOD left in 2014. The HOD appointment procedure was the Premier appointed through the EXCO. Provincial Treasury had to wait for this. It was a serious situation. It was hoped that there would be an appointment before the end of the year. The Northern Cape could not claim space for local content if it was not capable. Local SMMEs would be supported to be ready when the development opportunities came. He was confident that they were ready to occupy that space. The Section 18 intervention was dicey. The truth was that an administrator was appointed but there was a technical problem as there was a court case. The outcome did not favour the administrator, but an official who was then supposed to be reinstated in the DoH as HoD. National Treasury had to extend its mandate to ensure that specific things were done. No specific administrator was given a specific responsibility. Provincial Treasury was supposed to get a finance person, but in fact it had to perform those functions by itself. Systems were put in place but there was no real improvement.
Mr Jack said if health facilities were sponsored by national government, operating costs had to be provided as well. Half of the hospitals built could not get enough resources to operate 100%. 116 posts for specialists were advertised, and only 16 were applied for. Local young people had to be motivated to return. The Kimberley Mental Health Hospital could service neighbouring provinces. Eastern Cape and Free State could refer patients, and should contribute to costs. In the case of the De Aar hospital, which was moved, the EXCO decided not to build without ensuring that operating costs would be provided for. The substance abuse centre was built with operating costs provided for. With extra funding, the operating costs for the three other institutions could be provided.
Mr Thami Mabija, Acting HOD: Northern Cape Treasury, responded that there were various work streams for intervention in Health. Facilities would be empowered to collect revenue. A health structure was being developed through the involvement of the Premier’s office. The last time the health structure had been approved was in 2002. A new information system was being developed to provide patient information in case of medico-legal claims, so that evidence could be provided in court. The medico-legal team in the DoH had to look at old cases that were four or five years old. Information was needed to deal with that. Consultants were working on irregular expenditure in the DoH. The Department would then have that resource. Currently it did not have the capacity to do investigations. Cases In Health went 10 years back. Consultants had to go into the archives to put together cases, and to find out who had been responsible. Most contracts were signed by Accounting Officers. Sometimes the same Accounting Officer who had signed a contract was asked to investigate it, hence there was reluctance to pursue an investigation. It was easier to look at it from the outside.
Ms Lephina Bosvark, Northern Cape Treasury: General Manager: Financial Governance, responded that out of the R10 billion irregular expenditure, R4 billion related to implementing agents for Education and Health which were IDT and Public Works. Accounting Officers were asked to use implementing agents. In Education, there was irregularity related to IDT. The Department did a preliminary investigation, and wrote to Treasury that no-one in the Education Department could be held accountable. IDT was responsible for contracting the contractor, and there might have been a miscalculation or mishap in the process. Often it was not necessarily a matter of irregularity, but rather a failure to deal with things decisively. For example, there was the regulation that there had to be three quotations, if the amount was above R10 000. If only two could be obtained, all that was needed was to get a deviation letter from the Accounting Officer to say that it was opened up, but only two quotations could be obtained. Often it was not dealt with in that way, and so it was recorded as irregular expenditure. Most irregular expenditure was due to managerial challenges. Management could avoid irregular expenditure by acting decisively.
In the case of the Departments Public Works and Agriculture, application forms for deviations to Northern Cape Treasury, and it could be seen that 100 transactions were performed by the same individual. Yet the Department would claim that no one could be held responsible. When Northern Cape Treasury went back to them and said that it was impossible, that there was a person who did transactions throughout the year, the Department would not respond. Departments were reluctant to take action.
New Treasury Regulations were needed, so that Accounting Officers could be charged for transgressions. In DoH, irregularities were due to SCM units not being properly capacitated. People had to be upskilled. The SCM environment was very regulated. If the latest developments were not kept abreast with, it would lead to irregular expenditure. The Department of Transport had a problem with rural routes where there were only four or five taxis to transport school children. Processes were not followed for these. It was argued that only four taxis were involved, and those should get the contract, as it was not feasible to get transport from Kimberley for Kuruman, for example. An investigation was done by an accounting firm, which found that even if a tender was to go out, the result would have been no different. If there was merit to the service, Treasury could be approached to condone the irregularity. The Provincial Treasury worked with departments to curb irregular expenditure. At the administrative level, Treasury expectations had to be known, but political backing was needed to ensure consequences. There were irregularities related to the State Information Technology Agency (SITA) because departments did not involve SITA. In terms of value for money, departments could spend less by going through the normal procurement route, and not going through SITA. SITA would supply an empty computer, whereas the normal procurement process could supply a computer with software, there would be a tool ready for use. CoGHSTA had to cancel a SITA contract because SITA only supplied computer hardware, without software. Another tender would have been needed to procure the software. Yet SITA had to be involved because the law prescribed that. This did cause an increase in irregularities.
The Chairperson asked that the Committee Researcher and Treasury take note of this, it could not be left at that. It had to be noted and recorded.
Mr Bakang Moea, Northern Cape Treasury Senior Manager, responded that underspending was mostly on CoE. Due to the moratorium, most departments were challenged in making appointments. The moratorium had to be reviewed, with time frames provided for appointments. Learner growth was a sector issue. Up until the year before, all departments used Snap Survey. It was problematic to link it up with the budget process. There was a huge spike in January and February in learner numbers. In the current year the National Department of Basic Education had introduced learner enrolment system and there would not be an unexpected jump in February in future. It was difficult to incorporate anticipated learner numbers into the budget process. There had to be a more accurate tracking system and better planning. He said 34% went to Education, not 24%.
Mr Rob Tooley, Finance MEC, referred to the recent incident where a bus was burnt and seven miners were killed. There was serious gangsterism with illegal mining. An update on SAPS intelligence could be provided. Land acquired by CoGTA was being investigated by the Hawks, and there would be serious consequences. Seven Limpopo municipalities invested a total of R1.2 billion in the VBS Bank. He wrote a letter to the HOD to appoint a forensic investigator, to ascertain what had been invested since 2014. Investment decisions were made that were contrary to the Municipal Finances Management Act (MFMA). It had to be seen if anybody got a kickback.
Underspending in Education amounted to R155 million. This was due to a tender advertised for ICT connectivity, but the department failed to get a qualifying bidder. There was late delivery of school furniture and late invoicing. Educator training service providers did the training but submitted invoices late. With the National Schools Nutrition Programme (NSNP), there was non-delivery of food stuffs and non-submission of invoices. Under transfers and subsidies, there was underexpenditure of R28.1 million, because some schools did not comply with the set requirements. For capital asset payments, there was underspending on connectivity, due to challenges within SITA. There were delays in the delivery of equipment to health facilities. Underspending on transfers and subsidies in Health amounted to R52 million, due to unfinalised litigation cases, and precautionary measures related to transfers to non-profit organisations (NPOs). SCM issues were reported on to the Executive. There was to be no variation unless signed by the executive authority (EA).
Provincial Treasury could only assume responsibility for matric pass rates in the sense that it should ensure there was enough money for learner and teacher support materials. It could support infrastructure, but could not assume responsibility for teacher training.
He said the challenge about servicing of sites was that there were consistent increases in land prices when municipalities made it known that they wanted to buy land.
Limpopo's economic growth was linked to the world market. When mineral prices went up, there was growth in the province.
Provincial Treasury was no longer responsible for appointments, which was done by personnel managers. There would no longer be appointments to back offices.
He answered about SEZs and project managers, that government officials could not do things quickly. R100 million was granted to SEZs. The process took time. It was better to get a small company to manage the process. Tubatse would be assisted with spatial planning. There were 38 mines in the area, with eight more on the way. There were instances where traditional leaders would align themselves with mining houses, without assisting the community.
On the expired drugs, work had to be done on whether the drugs procured were in fact appropriate. The provincial department had to sit with the national department to determine the health pressures in Limpopo. There was a lack of expertise about the matter. The pharmaceuticals depot was in a sorry state and there were drugs covered by water.
Mr Tooley replied that it was hard to understand how the RAF could overcommit when it had no money. There would be feedback on VBS Bank. In a longer session, there could be discussion of municipalities tabling unfunded budgets. The asset management process was outsourced in all 26 municipalities. There was not a single asset manager. Unauthorised and irregular expenditure could be curbed by consequence management and stopping contract variations, as it occurred in the SCM space. Monthly reports had to be insisted upon. Procurement was mostly from black companies, black woman companies, youth, township and rural companies. There had to be monthly reports, the province was spending R9 billion a year on goods and services, the economy had to be driven.
He replied to Mr Shabangu that the province was sometimes good in practice but bad in theory. 46% went to Education in Limpopo. There was cause for concern about SCM, and strict interventions were needed around it. The return of R150 million to the National Department of Housing was unacceptable. The Department had to plan, as the demand for housing was extraordinary. Service providers on site had to have capacity. There was adequate funding and subsidy for learner transport, but bus services were a challenge. in Limpopo’s own bus company was on its knees, and there were other bus companies that could not play the game.
The Chairperson asked National Treasury to comment.
Ms Gaarekwe, National Treasury, answered Mr Motlashuping about the rollover, saying it was not really a condonement. Treasury had met with all provinces on 23 May to find out what Treasury could approve. Treasury was waiting for the submission of expenditure reports by 31 May. Although the expenditure outcomes had been audited, it was still in a preliminary form as presented today. By mid June, departments were expected to write formal letters to state the amounts that they wanted rolled over. The money was already sitting in the Provincial Revenue Fund. National Treasury did not want a situation where departments would again not spend because the rollover process was implemented late. Departments had to prepare in advance to use the money. National Treasury could not condone irregular expenditure. The PFMA was clear about the role of the Accounting Officer in preventing irregular expenditure. The Northern Cape and other provinces could learn from Limpopo. Mr Tooley had mentioned that the Executive had to sign for any contract variations. Some of the irregular expenditure went far back in time; people had to be held accountable. On transversal contracts, she noted that departments were allowed to go to a cheaper supplier than SITA, for instance.
The Chairperson concluded that the Auditor General would be called after the Committee had met with all the provincial treasuries. There had to be consequences for PFMA non-compliance. If Parliament could address public entities, departments should also be addressed to comply. Departments had to be capacitated with people who were able to do the work. Monitoring and evaluation had to be strengthened. Giving the medicine was an old problem. There was always someone who was not doing the work. The Committee would meet as the Appropriations Committee the next day to look at spending on the Basic Education Infrastructure Grant. When the term of the Committee came to an end next year, Provincial Treasuries would be called in to be handed over to the new Committee.
The Chairperson adjourned the meeting.
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