Mpumalanga 2017/18 expenditure outcomes: Provincial Treasury

NCOP Finance

12 June 2018
Chairperson: Mr C de Beer (ANC, Northern Cape)
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Meeting Summary

The National Treasury reported that there were fiscal risks and high accruals in Mpumalanga’s Departments of Education and Health. Improved infrastructure delivery, capacity enhancement, and better planning and project execution skills had to be sought to reduce under-spending, especially of conditional grants. Irregular expenditure and medico-legal claims were a challenge in Health. Infrastructure delivery was a challenge in Education. Accumulated accruals and unauthorised expenditure had increased in the province. Public Works and provincial departments had failed to assume mutual responsibility for non-performance in infrastructure projects. There was instability in leadership, prolonged vacancies, a breakdown of internal controls, and challenges related to supply chain/procurement management.

The Mpumalanga Provincial Treasury stated that although economic growth was satisfactory, youth and female unemployment was a challenge in the province. A re-industrialisation programme was based on special economic zones (SEZs); agricultural, forestry and petro-chemical industrial parks; and stainless steel and tooling initiatives. Government was shifting spending to small, medium and micro enterprises (SMMEs), cooperatives, and township and rural enterprises. A black industrialist programme had been launched, and there was a focus on reviving tourist structures. The province had collected R1.3 billion in revenue in 2017/18. Under-spending was split between the Equitable Share and Conditional Grants. There had been under-spending on infrastructure, goods and services and capital assets in Education. Health faced challenges of litigation. Overall spending on economic infrastructure for the province had been 90% of target.

In discussion, there was grave concern about the state of hospitals and roads in Mpumalanga, and the departments responsible. The Chairperson encouraged the Member of the Executive Committee (MEC) not to procrastinate with placing the Department of Health under section 18 administration if it was deemed necessary. Several Members remarked on the negative implications for tourism of roads that were in bad repair. There were other remarks and questions about non-compliance with the Public Finance Management Act (PFMA); irregular and unauthorised expenditure; accruals; under-spending; the potential for an international fresh food produce market; the revival of Highveld Steel, and the Nkomazi SEZ and the 40 Young Incubators programme; the adverse effects of immigration on budgets; progress on the Moloto corridor; the debt owed to municipalities; the Department of Public Works and high rentals; the poor performance of the Mpumalanga Economic Growth Agency (MEGA); the high staff turnover; the need for more public/private partnerships (PPPs); and capacity building and administration.

Meeting report

Introduction by Chairperson

The Chairperson said the objectives that the provinces had to pursue were good governance and sound financial management. Mpumalanga would be asked if money allocated had been spent wisely. The Committee would look at the fiscal position in terms of the budget; own revenue collected; fruitless and wasteful, irregular and unauthorised expenditure, and what had been returned to the National Treasury. The current meetings with the provinces had to provide a view of departments through presentations by the National and Provincial Treasuries.

Mpumalanga 2017/18 expenditure: National Treasury briefing

Ms Ogalaletseng Gaarekwe, Director: Provincial Budgets, said there were overall fiscal risks pertaining to education and health, and high accruals. Improved infrastructure delivery, capacity enhancement, and better planning and project execution skills, had to be sought by departments to reduce under-spending on certain spending items and conditional grants. The Department of Health (DoH) had overspent on medical supplies. Irregular expenditure awaiting condonation amounted to R6.7 billion. Accumulated medico-legal claims came to R5.2 billion. In the Department of Education (DoE), the province had a high learner-school ratio, and infrastructure delivery was a challenge. Accumulated accruals and unauthorised expenditure had increased. Accumulated accruals for the province had increased to R1.3 billion. Public Works and provincial departments had failed to assume mutual responsibility for non-performance in infrastructure projects. There had been instability in leadership, prolonged vacancies, a breakdown in internal controls, and challenges related to supply chain / procurement management.

Comment by Chairperson

The Chairperson remarked that the last two pages indicated what had to be looked at. The budget was R45.1 billion; R1.3 billion in own revenue had been collected; under-spending amounted to R484.9 million; accruals stood at R1.3 billion, and municipalities owed the province R189 million. He asked the MEC to proceed with the presentation by the province. It was not necessary to repeat figures cited by the NT. It had to be indicated how accruals and irregular expenditure were to be addressed, as well as under-spending of R28.1 million on learner/teacher support materials. Going forward, recommendations by the Committee made in 2016/17 had to be addressed, with reference to progress made.

Mpumalanga Provincial Treasury: Preliminary outcomes of 2017/18 provincial expenditure
 

The briefing was presented by Mr Sikhumbuzo Kholwane, Member of the Executive Committee (MEC): Finance, Economic Development and Tourism, Mpumalanga, and Ms Nonbedesho Nkamba, Head of Department (HOD): Provincial Treasury.

It had been expected that Mpumalanga’s economic performance would be in line with national growth expectations in 2018, but youth and female unemployment had been a challenge. A re-industrialisation programme had been based on special economic zones (SEZs), industrial technology parks -- agricultural, forestry, and petro-chemical -- and stainless steel and tooling initiatives. Government would shift spending to small, medium and micro enterprises (SMMEs), cooperatives, and township and rural enterprises. The Government Nutrition Programme would drive the growth of emerging farmers. A black industrialist programme was being established. There was a focus on reviving tourism structures.

The province had collected R1.3 billion in revenue in 2017/18. Inconsistencies in patient billing records had led to rejected medical aid and Road Accident Fund (RAF) claims. The province had taken over the motor vehicle licensing function from six municipalites. Under-spending was split between Equitable Share and conditional grants. There had been under-spending on infrastructure, goods and services and payments for capital assets in education. In health, the province was strengthening control systems to avoid litigation. Overall spending on economic infrastructure for the province had been 90%.

Discussion

The Chairperson welcomed Dr H Mateme (ANC), the alternate Member for Limpopo. The Treasury had mentioned that capacity enhancements, better planning and project execution skills had to be sought by departments. That applied to people who worked with money. Irregular expenditure by the province had amounted to R10.8 billion, which was a cause for concern.

Mr T Motlashuping (ANC, North West) commented that he wished to deal only with the National Treasury presentation, as the Provincial Treasury (PT) briefing had only mitigated the concerns raised by the NT. When the Committee sat with the provinces, there were concerns that were constantly raised, about which nothing was done. The Committee raised concerns about value for money. Parliament was called on to advise, but the best advice was simply that the Public Finance Management Act (PFMA) prescripts had to be adhered to. Year in and year out there were unauthorised, irregular and fruitless and wasteful expenditure, accruals and under-spending of budgets. Provinces would say that it would be dealt with, but this did not happen. Capable people had to be placed in the right spaces. Suppliers had to be paid within 30 days, but people sat in their offices all day and every day and failed to do so. He had been in the Committee for four years, and the excuses offered for not paying within 30 days were feeble. The PFMA prescripts had to be followed.  The NT had to explain the relation between under-spending and the fact that R100 million had been granted to the province. The province was under-spending on capital projects. Engineers and technicians, supply chain management (SCM) directors and HODs were involved, but still the province could not spend.

The National Development Plan (NDP) was anchored in infrastructure development. Annual performance plans (APPs) were presented annually, but money was not spent as planned. All provinces did not do well in education and health, which was unacceptable. There were only five ideal clinics in Mpumalanga. Budgets were available, but still there was under-performance. Principals and teachers had to use extra time to plan for the coming year with respect to enrolment. Over-expenditure in education was a challenge. There was under-performance in health, and medical expenditure was worrying. Not enough was being done to secure goods and services. He was getting fed up. He would admit that it was not an appropriate expression for Parliament, but that was how he felt. Budgets allocated money that was not being used. People were being paid to do nothing. There had been R32.6 million under-spending on compensation of employees (CoE) in health. The performance of the Department caused concern. Outstanding overtime payment had been referred to. He asked what the overtime was for. People were not doing the work, and yet were being paid for overtime.

Mr O Terblanche (DA, Western Cape) remarked that he wished to align himself with Mr Motlashuping. The story line for the different provinces remained the same. He might as well have remained in his office. He suggested that when the Committee met with the provinces, the Department of Public Works (DPW) be called in. A process had to be started where the national department could facilitate programmes with the provinces. Nobody would accept responsibility. Slide 46 of the Mpumalanga presentation had set out all the problem issues. There had to be updates on inroads made towards improvement.

He was interested in the international fresh food produce market the MEC had referred to. He asked if there was a proper airport to support exports. Mpumalanga was a beautiful province with much potential, but it had become hard to travel by road in it. It was nearly impossible to drive along the Long Tom pass. It had become the “long walk” pass. Buses were taking other routes. The province had to look into bringing tourists back. The accruals indicated by the NT were worrying.

Mr M Shabangu (EFF, Free State) asked if Highveld Steel was still operating. A visit to the entity had proved that it was a white elephant. 15 000 to 18000 jobs had been lost. He asked if it could be brought back to optimum production.  The Nkomazi SEZ initiative could very well attract people from elsewhere in Africa, who would burden the province with a demand for free education, as had happened in the Free State, with people coming in from Lesotho. He asked about the 40 Young Incubators project. The project had to be inclusive -- it had to attract the poorest of the poor. The youth of the day were not considering agriculture as a future career. The question was how to attract them.

There had been silence about the Moloto corridor. It was said that the project was alive, but one could get killed on bad roads when approaching it. He suspected that this was intentional, to make the project inaccessible.  He asked what was being done about money owed to municipalities. Municipalities were collapsing because national and provincial departments owed them funds for education and electricity. Traffic laws had to be enforced to rehabilitate users to pay and to drive safely. The NT had mentioned that SCM was a challenge. He asked what the causes were. After 24 years, it was unacceptable to be told that there was a lack of qualified people at national, provincial and local levels. The question was how the situation could improve.

Mr F Essack (DA, Mpumalanga) remarked that Mpumalanga was his province and he knew it well, having grown up there. He asked why the Finance Minister, or his Deputy, was not present. Health in Mpumalanga was in a total state of collapse. It was even worse than the figures supplied by the NT suggested, however frightening and shocking the figures were. Hospitals like the Rob Ferreira hospital were in a terrible state. Mpumalanga roads were the gateway to the Kruger Park, but were in a terrible condition. The DPW was in a state of total disarray, and the rentals were too high.

On page 29 of its presentation, the NT had indicated that the province had a high number of people of 20 years and older, who had no schooling. The next bullet stated that accumulated accruals had increased to R327.5 million in education, and accumulated unauthorised expenditure had increased to R705.2 million. It was getting out of hand. He referred to transfers made to public entities by Economic Development and Tourism, which comprised 78.7% of the total departmental budget. Of this, 49% went to the Mpumalanga Economic Growth Agency (MEGA). He asked what MEGA had done in Mpumalanga for the last four or five years. Money was given and salaries were paid, but MEGA was a mess -- and it was eating money. He referred to slide 30 of the PT briefing, where it was stated that Culture, Sports and Recreation had incurred an overdraft at year end, yet he was not seeing any stadiums being built.

Dr Mateme referred to the high staff turnover. Performance could not be expected when there was no stability. In the following year there would be a sixth Parliament in office. Every administration stood or fell by the kind of civil service it had. The question was what legacy the Fifth Parliament would leave behind, with respect to the provinces.

The Chairperson commented that it was hoped that the provinces could be called back before the adjournment in December. The Ministers of Health, Education and Finance would be invited. The Appropriations Committee would meet with the DPW. Provinces had to look at public-private partnerships (PPPs). Government could not do everything. Economic growth in the first quarter had not been what was expected, which put pressure on the NCOP for the Medium Term Budget Policy Statement (MTBPS) in October. The effect of fiscal consolidation on big departments like Health and Education had to be ascertained. The movement of people from Mozambique and Swaziland into Mpumalanga affected the fiscus, as had immigration from Lesotho into the Free State.

He asked how the CEO initiative had been filtered down into the provincial sphere, from national level. The Auditor-General’s (AG’s) outcomes on MEGA could be looked into. The research team could draft a paper on that. The Division of Revenue Act (DORA) presentation on 20 March had stated that R2 billion annually was to be spent on capacity building and administration. There had to be a diagnostic analysis of capacity building and administration for each province, if possible before March 2019. It had to be asked if people’s skills conformed to the criteria for senior management. Senior management decisions were filtered down to lower levels for implementation. Provinces had to learn from each other when it came to matters like the collection of patients’ fees and motor licence fees.

Mpumalanga’s response

Mr Kholwane responded that he wished that the various departments could be brought along so that the PT would not have to take all the blows. The departments had to hear for themselves what the Committee was saying. The Committee could do well to call the other MECs. The PT shared the frustrations of the Committee. He conceded that the same issues came up, with no movement to be seen. It could be tied down to Health and the Department of Public Works, Roads and Transport. The PT would welcome suggestions on how to deal with overwhelming challenges in those departments. Almost all hospitals faced problems of infrastructure collapse. There had to be a massive drive to build hospitals.

The Chairperson asked if hospital equipment had to be imported.

Mr Kholwane replied that there had been a Cabinet decision to source from local suppliers. Limited budgets were an impediment to establishing ideal clinics. When one area was focused on, challenges arose in another. The province could not wait until a hospital collapsed on patients, and created a national crisis. A huge hospital building programme was needed. Some hospitals were beyond maintenance, and it would cost more to maintain them than to build new ones, but new hospitals also came at a great cost.

There had been engagement with the NT about innovative ways to introduce PPPs into building social infrastructure.  A new system had been developed to cushion against medico-health claims. It had been discovered that there was a lot of fraud involved. Some lawyers went as far as to write claims using names of people who did not exist. In the past, the Department had paid, but currently there was engagement. There were claims from other provinces that ended up in Mpumalanga. There had to be engagement with sister departments.

He answered Mr Terblanche that Mpumalanga did have an airport.

The Chairperson interjected that it was an excellent airport.

Mr Kholwane agreed, but said it could be made more active. It could cope with international fresh produce exports. With further development, direct flights from Heathrow and Frankfurt would become possible. He agreed that roads had to improve, to serve tourists when the airport was fully operative.

Highveld Steel had taken 800 workers back, and he had spoken to a company that could start up the furnaces again. It could not be restored to its former glory because of steel prices, but every effort would be made to claw back the lost jobs. The intention behind the Nkomazi SEZ was good, and it could attract investment. He would admit that as the proverb went, when one opened a window for air to come in, mosquitoes also flew in. Nkomazi municipality would be alerted to possible negative elements. When finalized, it could create 100 000 jobs.

The 40 Young Incubators programme indeed targeted the poorest of the poor. It was possible that young people would return to agriculture if it could be made fashionable. Government was a market for youth in agriculture. Small-scale farmers would benefit.

The Moloto corridor was a national and provincial programme. Gauteng was currently in control, but the corridor went beyond Gauteng to Mpumalanga, North West and Limpopo. The problem was how to bring all the different provinces together.

Renting for government premises was at a huge cost. It would be better if the government could build its own buildings, through PPPs and the DPW. Rentals were unsustainable. There could be a government precinct for regional and district offices.

MEGA was an inherited entity. The AG report could assist it to shape up, but it had been in a mess for some time. However, it could be turned around. It had received a qualified report for the first time in 2016/17, from an adverse disclaimer. The PT had adopted an aggressive stance towards it. Its budget had been lowered from R300 million to R94 million, and it had been instructed to generate its own resources.

He answered Dr Mateme about the loss of personnel, saying that government had become no more than a training ground. The government’s salary structure was too rigid. Mpumalanga was a rural province. Professionals did not want to stay. They wanted to go to where there were opportunities, life and a ‘vibe.’

The Chairperson suggested that techno parks be linked to universities, as was done at Stellenbosch.

Ms Nkamba responded about immigrants from neighbouring states who entered schools. In education, funding had changed with the introduction of the Learner Unit Record Information and Tracking System (LURITS) system. The system required learners to have ID numbers. There were learners from neighbouring countries without ID numbers. The impact on the budget had to be ascertained with the help of the NT.

She answered about debt owed to municipalities. Departments were warned that if debt to municipalities was not paid within 30 days, their equitable share would be cut. Section 18 of the PFMA allowed the Treasury to do so. However, there had to be structures to assist municipalities with billing, as it was not always 100%. An example was that of Bushbuck Ridge municipality, who had billed the DPW for R230 million for property rates and taxes, but it had been found that the properties belonged to different agencies, including traditional councillors, the Department of Rural Development, and the DPW itself. When the bills were split, it turned out that R90 million was owed by Public Works, which had not adhered to payment plans. The bill had been split and R78 million had been paid by the national DPW.

Even national departments engaged with the province. In Health and Education, head offices paid their bills, but hospitals and clinics did not. The DoE had been instructed to change the model of taking the paper budget to schools, and to rather keep the paper budget for particular services at head office, to pay the institutions, and to allow the schools to do other work. The budget was transparent -- it was gazetted as per the DORA. The PT insisted on the disclosure requirement for financial statements, even of unconfirmed balances, so that municipalities would not be owed for services, but it was essential that billing by municipalities had to improve. There were threefold challenges around infrastructure. Savings on the compensation of employees (CoE) was due to the moratorium. Accruals in education had decreased to around R95 million, which was fully cash backed.

The Chairperson concluded that the Committee had to look into how constitutuencies worked. Clinics and hospitals had to be visited more regularly. MECs in the provinces had to sensitise colleagues in the provincial legislatures. People had to be assisted to get better work environments. It had to be asked if money was being spent wisely. There were practical measures to improve clinics. For instance, fixing roofs could prevent water dripping on to equipment. The role of the NCOP was to hold national, provincial and local executives to account. The Free State and KZN would appear in the following week. Gauteng would be dealt with before 29 June. There would be a packed programme in the third term, starting on 31 July.

The Chairperson adjourned the meeting.
 

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