KwaZulu-Natal 2017/18 expenditure outcomes: Provincial Treasury

NCOP Finance

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

The National Treasury reported that in KZN there were overall fiscal risks pertaining to education and health, and high accruals. Capacity enhancements, better planning and project execution skills had to be sought by departments to reduce under-spending, especially of conditional grants. Thirteen out of 15 departments had under-spent, largely in the area of compensation of employees (CoE) as a result of the slow filling of posts. In Education, funding per learner was below the norm across different quintiles. In Health, there was a contingent liability of R10.3 billion related to medico-legal claims. Medical students returning from Cuban were expected to exert pressure on the budget. There were weak supply chain and procurement systems, a lack of a human resource management strategy, and late payment of invoices that had a negative effect on small, medium and micro enterprises (SMMEs). Cash management in the Health Department had to improve. Irregular expenditure amounted to R19.7 billion, of which Health accounted for R7 billion.

The KZN Provincial Treasury reported that the province was mindful of fiscal consolidation, and care had been taken that it did not over-spend at the end of 2017/18. Rationalisation of public entities was proceeding apace. Medico-legal claims were receiving increased attention. The Provincial Treasury (PT) had engaged with departments to promote spending on service delivery, and to reduce overspending on CoE. The supply chain management (SCM) aspect of the Treasury/Health assistance plan was being implemented under section 18 of the Public Finance Management Act (PFMA). KZN had budgeted for a contingency reserve, which had been used in 2017/18 to fund disaster relief following severe flooding in October 2017, with more than R400 million allocated. However, the National Disaster Management Centre (NDMC) had been slow to appoint assessors, and the province had received no funds to date. The damage had been assessed at R1.867 billion. More delays in effecting repairs would lead to an escalation of repair costs, and a severe and negative impact on communities.

Members were critical of the high levels of irregular expenditure, the volume of invoices not paid, the lack of housing delivery and the “fiscal dumping” of funds on municipalities and agencies at the end of the financial year. They said there was an urgent need to fill critical skilled posts, and suggested that it might make more economic sense for Cuban doctors to come to South Africa to train local medical students, rather than the students being sent to Cuba.

Meeting report

Introduction by Chairperson

The Chairperson said that the Department of Public Works (DPW) had been informed by someone that Parliament was already in recess, without knowing that for the NCOP the term continued until 28 June, so there had been challenges in getting Members to the meeting. He welcomed the Member of the Executive Committee (MEC) for Finance (KZN) and the Head of Department (HOD) of the Provincial Treasury, and delegates from the Stellenbosch University Business School. He wished that students from such institutions would visit more often in order to experience the practical side of accountability. The Committee would meet with the Free State and Gauteng on the coming Friday morning, at a date that suited them, as MECs had to be present.

Mr T Motlashuping (ANC, North West) commented that he had a problem with the fact that KZN and Gauteng wanted to meet with the Committee in their own convenient time. It was not the first time that it had happened that the provinces had not adhered to the set meeting date. A bad precedent was being set. The Committee was dancing to the tune of KZN and Gauteng.

The Chairperson answered that he had to be aware why the Committee was scheduled to meet on the coming Friday, for the first time in six months. There could be no meeting if the MEC was not present. Politicians voted for the budget at national, provincial and local levels. The Committee insisted that MECs had to be present, and sometimes they had to attend Cabinet meetings. He thanked the KZN province for coming. The Committee was not dancing to the tune of the provinces. There was collaboration. The challenge of MECs having to be present  also affected the Appropriations Select Committee.

Ms Belinda Scott: Finance MEC, KZN, responded that she had not been able to attend at an earlier date, due to a Cabinet meeting. The provincial treasury (PT) had also received a notice to the effect that there had been a change in the Committee’s programme.

National Treasury: Briefing on KZN preliminary expenditure outcomes

Mr Emmanuel Pillay: Chief Director, Provincial Budgets, National Treasury (NT), said there were overall fiscal risks pertaining to education and health, and high accruals. Capacity enhancements, better planning and project execution skills had to be sought by departments to reduce under-spending, especially of conditional grants. Thirteen out of 15 departments had under-spent, largely due to under-spending in compensation of employees (CoE) as a result of slow filling of posts. The province had a textbook coverage of 93% across all grades. Funding per learner was below the norm across different quintiles. In health, there had been under-spending due to difficulties in filling critical posts. There was a contingent liability of R10.3 billion related to medico-legal claims. Returning Cuban medical students were expected to exert pressure on the budget.

In health, there were weak supply chain and procurement systems, lack of human resource management strategy, and late payment of invoices that had a negative impact on small, medium and micro enterprises (SMMEs). Cash management in the Department of Health (DoH) had to improve. The remuneration of izinDunas amounted to R799 million over the 2017 MTEF, placing strain on the province. Irregular expenditure had amounted to R19.7 billion, of which health had accounted for R7 billion.


KZN Provincial Treasury on preliminary budget outcomes

The Chairperson asked the PT not to repeat figures presented by the NT. The fiscal position was important to consider. The allocated budget was R160.9 billion. Under-spending amounted to R740.5 million. Revenue collected was R3.3 billion. Irregular expenditure and accruals were high, which had affected the fiscal position.

The briefing was presented by Ms Belinda Scott: Finance MEC; Mr Simiso Magagula: HOD, Provincial Treasury, and Ms Tanya Stielau: Chief Director, Public Finances.

They said KZN was mindful of fiscal consolidation and care was taken that the province did not overspend at the end of 2017/18. Rationalisation of public entities was proceeding apace. Medico-legal claims were receiving increased attention. KZN had 12 financially unqualified departments in 2015/16, with three receiving qualified audits. The PT had engaged with departments to promote spending on service delivery, and to reduce overspending on CoE. The supply chain management (SCM) aspect of the Treasury/Health assistance plan was being implemented under section 18 of the Public Finance Management Act (PFMA).

KZN had budgeted for a contingency reserve, which had been used in 2017/18 to fund disaster relief following the severe flooding in October 2017, with more than R400 million being allocated. However, the National Disaster Management Centre (NDMC) had been slow to appoint assessors, and the province had received no funds to date. The damage was estimated at R1.867 billion. More delays in effecting repairs would lead to an escalation of repair costs, and a severe and negative impact on communities in KZN. The financial sustainability of the Cuban doctor programme was an important topic.

Discussion

The Chairperson drew attention to a budget forum meeting. It was clear that issues of governance were serious, and had to be addressed. There were 30 000 unpaid invoices. Monitoring and evaluation had to improve. It was good news that the Education Department had been turned around.

Mr Motlashuping commented that the curbing of irregular expenditure had to be guided by the Public Finance Management Act (PFMA). He referred to slide 5 of the PT presentation, where it was stated that KZN had a fairly steady management structure, but still there was irregular expenditure of R12.9 billion. The two facts were contradictory. No-one had been taken to book for non-compliance with the PFMA. Invoices were not being paid within 30 days. In his province, a directory had been created to deal with payment within 30 days. The report on housing looked good on paper, but it was doubtful whether there had in fact been delivery. Money had been put into the Housing Development Agency (HDA) and then cited as a commitment, but there had been no delivery. The NT had to pronounce on how delivery had progressed, as R500 million had been invested. The Department of Education had to do a diagnostic study about throughput pass rates. He asked why KZN had set its own standard of R966 per learner, lower than the average of R1 243. Regarding inclusive economic growth, he asked what was being done about targets that had not been met, and what had impeded implementation.

Mr O Terblanche (DA, Western Cape) said he was pleasantly surprised to see that KZN was the first province that did not have problems with capital projects. He asked what was meant by “non-feeding”. He was worried about medical equipment not being serviced. Medical claims were alarming. There was under-spending in some areas of CoE, and overspending in others. As it was possible to fill only funded posts, he asked how over-expenditure was possible. How would the Department of Health be turned around?

Mr F Essack (DA, Mpumalanga) commented that the accruals because of unpaid invoices, and the irregular expenditure of R19.7 billion -- of which R7 billion came from Health -- were red light signs.

Mr M Monakedi (ANC, Free State) said he was impressed, as it seemed as if the province knew what it was doing. Despite the challenges, there was a sense of direction. He asked for further clarification about the unfunded mandates the MEC had referred to. Was there any limit to the number of iZinduna that could be appointed? There was a process to appoint traditional leaders at the premier level. There could be problems if this was not in place. He commended the over-recovery by the PT, and said it had to be shared with other provinces, which had serious challenges. The KZN PT had previously had a problem, but it had gone back and considered the Committee’s recommendations, and there had been improvement. He referred to the transfer of funds at the year-end to agencies and municipalities, which pointed to a lack of planning. Arrangements with municipalities had to be known at the beginning of the year, and transfers to municipalities as implementing agents (IAs) had to be done at that time. The filling of posts in Health was taking too long. Vacancies could have a negative impact on service delivery. He asked about extra funding for unfunded mandates. If SMMEs were not paid on time, they could go under. It was the mandate of government to support emerging businesses. The President had issued a directive at the beginning of the year that payment had to be made within 30 days. He asked for more information about the R6.8 million that had been spent on containing cross-border crime.

Mr M Shabangu (EFF, Free State) commented that there had been under-spending in KZN while many people were living under difficult conditions. He asked how medical students who went to Cuba were identified -- whether it was only on account of good academic performance, or if background was also considered. There had been reports of alcohol abuse. Vacancies were taking too long to be filled. It could be that there was not enough head hunting, as there were many educated people in KZN. He asked if it could be on account of cadre deployment. There had been R46 million under-spending on medical supplies. KZN had the highest incidence of AIDS. Spending was not efficient. People had to be supplied with medicines. He asked why the number of doctors, nurses and medical specialists was decreasing. There were big cities in KZN, so it could not be said that people were being drawn to urban environments elsewhere.

The Chairperson remarked that it was fortunate that KZN had the fiscal space to address disasters. His province, the Northern Cape, had only had R340 million for that purpose.

KZN’s response

Ms Scott responded that irregular expenditure was a concern of Cabinet. The PT helped wherever it could. It had “both feet into the DoH.” There was an investigation into the unspent invoices in the Department of Transport in order to understand why it had happened.  Monitoring and evaluation was carried out by the PT through regular meetings with departments about budgets, but it could only do so much.

At ground level the departments and the legislature had to assume responsibility for taking disciplinary action. There were inquiries that went back far in time. Usually only junior staff were disciplined, not senior staff. It was a problem that plagued the whole country. Work had been done with the Department of Labour (DoL) and the Department of Public Service and Administration (DPSA), over the onerous processes to be gone through. When someone was accused of stealing, the MEC would want that person out of the department, and there would be suspension while the disciplinary process was gone through. When someone was guilty, law enforcement was reluctant to come in on the criminal side, especially with forensic investigations.

Due to the population spread, the pattern was that the more rural the area, the less control there was. The PT had launched a pay-on-time operation. There was a landline number. Whoever did not pay on time was dealt with by that division. Those who failed to pay SMMEs could not speak of African empowerment. She felt strongly about the matter. Often small businesses were not paid first, as was proper, but the big ones were paid first because they had big voices.

Accruals in Health were being dealt with. Departments that had contracting staff on the ground involved SMMEs, and the PT was monitoring that.

For human settlements, statistics were available only for rural housing. The PT could come back with detailed figures. For rural housing, the target had been 7 764, and 11 237 had actually been delivered. However, only rural development had exceeded the target. The other statistics did not look good. The PT would report back on human settlements delivery.

Learner allowances in KZN were lower because there was no money. 45 % of the schools were rural. There were historical inequalities in education which were difficult to redress in the context of fiscal consolidation.

In Health, medicines and equipment were a priority. KZN had only four oncology machines. The Western Province had five, and there were three provinces that had none. The management of cancer patients was a problem. Only a limited number of patients could be treated. The MEC of Health was subject to a Human Rights Commission enquiry.

She referred to the izinDuna, and said that the other provinces had headmen, but the legislation did not deal with the payment of izinDuna. Umzimkulu had headmen from the Eastern Cape who were paid, and now an estimated 3 500 headmen insisted on being paid. In terms of Zulu customary law, the Amakosi could appoint izinDuna, and the amount could be limitless. The situation was unmanageable. An audit had been done, and it turned out that some izinDuna were already deceased. The province could not deal with it on its own. The national Department of Cooperative Governance and Traditional Affairs (CoGTA) had to assist. Payment had started two years before, and there was R1.5 billion owed in backpay. CoGTA had paid 50% and the rest had been taken from the other departments. The various Ministers of Finance and CoGTA had to cooperate. It was a battle without national assistance.

She answered about the transfer of funds to municipalities as fiscal dumping that led to a spike at year-end. The Auditor-General (AG) had told Human Settlements that it was responsible for accounting for money transferred, and not the municipalities.

Vacancies had an impact on service delivery, especially at the senior management level. There was no cap on doctors, nurses and educators.

The Health MEC had had to be called in about the medical students who had misbehaved in Cuba. It was a good programme, but it had not been properly budgeted for. It was an expensive programme, and she would suggest that Cuban doctors should rather be brought to South Africa to train students. It was hard to maintain oversight when students were in Cuba. The programme was nearing its end, and graduates were returning. She did not know how candidates were chosen.

KZN had a 70 km border that was not monitored, and there was unrestrained access to Mozambique, Swaziland and Lesotho. At Jozini, between Ndumu and another reserve, there was a corridor that served as a passage for stolen cars. The Department of Home Affairs was in charge there, not the Department of Defence, and there had been numerous discussions with them. There had to be a border agency to monitor the border. The stolen car racket brought hijackings and murder, and the local people were threatened. There had been talks with the Departments of Defence and Home Affairs about placing concrete “New Jersey” barriers in position. The province had wanted a memorandum of understanding (MOU) to the effect that the R50 million that had to be invested, would be paid back. The New Jersey barriers also had to be monitored. The national government was not assuming responsibility, and it was not a provincial competence.

The Chairperson commented that it was the Select Committee on Social Services that dealt with Home Affairs.

Mr Magagula responded to remarks that irregular expenditure was out of control. There were areas that the Treasury was not able to police and monitor. Accounting Officers (AOs) had to be held to account, as they were responsible for monitoring.

He responded to the remark by Mr Motlashuping, that there was no service delivery by human settlements, and said there were huge projects being undertaken, about which more details could be provided.

The Chairperson interjected that the Committee had been there, and had seen them.

Mr Magagula referred to the inclusive growth targets (slide 17), and said that the Treasury had indicated in another document where it had fallen short, and what it intended to do.
Unemployment had been isolated on slide 17. It was a global and local problem, and was exacerbated by low economic growth. It was difficult to address unemployment while the country had a growth rate of 1%. At a future engagement, areas that were not doing well, would be isolated.

He answered Mr Terblanche about capital spending, saying that the NT Infrastructure Development Management Sysyem (IDMS) provided a methodology to monitor progress, which had been adopted by the province.

Concerning legal claims, he observed that there had been a targeted approach to the Road Accident Fund (RAF) recovery.

Students qualified for the Cuban medical training programme according to the same criteria used to qualify for the study of medicine in South Africa. SA simply did not have enough facilities to train the required number of medical doctors. The training centres could accommodate only a given quota. The training in Cuba was expensive, and there were behavioural issues -- a student had come back pregnant, and two had died.

Regarding the filling of vacancies that was taking too long, it was easy to fill positions like personal assistants, social workers or nurses, but it was difficult to get an oncologist position filled. Four people had taken the oncology examination and two passed, while two had had to sit for supplementary examinations. SA was not producing enough specialists. Approval requirements for teachers and clinical staff had been relaxed. Formerly, the Treasury had to look at the finance side, and the Premier had to decide if the posts were critical, but approval for teachers and clinical staff was no longer required, which made it easier to appoint to such positions.

Ms Scott responded to the statement by the Chairperson that KZN had the fiscal space to deal with disasters. However, the province was being penalised for that. There was no urgency on the part of national to refund the province.

The Chairperson told her that this would be noted.

Mr Magagula responded about the migration of skills out of KZN. The Provincial Equitable Share (PES) had declined, which had led to people moving out and taking their skills with them. People with skills were better off in Gauteng. Currently that was where skilled people where migrating to.

Ms Stielau answered Mr Terblanche about whether there was under-spending or over-spending on CoE. The Health slide was confusing. The PT had presented the under-spending, as per the preliminary figures. It had been indicated that Health had under-spent by R325 million on CoE. However, between the preliminary and unaudited reports, all departments could move money from where there were savings to where there was no money. Money had been moved out of CoE.

Mr Pillay responded to the question about under-spending on CoE in some departments, and over-spending in others. Non-feeding was not related to under-spending. It was not widespread but it kept on happening. The Department of Basic Education (DBE) had had to intervene. He referred to the statements by the MEC about unfunded mandates. The NT was aware that it impacted on provincial finances. The PES had been reduced over the previous three years. At the same time, there had been floods and disasters. There were blockages in the disaster management process. The format had to be standardised. The NDMC were slow to verify. The process had to be streamlined. The NT would check if the NDMC verification was finally complete. Funding would be looked into.

Ms Scott responded that every disaster was declared, but it had taken the NDMC long to come to the provinces, and had then taken five months just to approve. The province sat with engineers, CoGTA and the Treasury, and did the homework. However, when a bridge was destroyed in a storm, the Department of Transport would fix it and get paid back only 20% two years later. The Department of Transport diverted funds for emergencies. Coastal towns suffered from a succession of droughts and floods. There had been droughts and floods in KZN and Limpopo for three years. However, there was not the same level of concern as there was about the drought in Cape Town. There was an attitude that it was all right if it happened in a rural area. The three-year drought had brought devastation. Water had had to be tanked to people.

The Chairperson agreed that a visit to the North of KZN, in the Jozini area, had proved that the effects of the drought were serious.

He commented that Canada had launched a recruitment drive for medical doctors through SA newspapers. There were already doctors from SA practicing there.

Mr Motlashuping said that the information that money for housing was with the HAD had come from the NT’s report. The Cuban system was productive with respect to primary health care. However, there were allegations that SA officials with off-shore accounts had acquired properties in Cuba, in which the SA medical students were lodged. This had to be investigated.

The Chairperson remarked that there should be a written reply about the training of doctors in SA. It was the duty of the NCOP to visit schools, hospitals and clinics, and to immediately report wrongs. It could be fitted into any of the four constituency periods in the year. School results in the foundation phase of grades one to four had to be investigated. Governance, financial management and SCM were issues in all the provinces. The monitoring and evaluation function was situated in the premier’s office, but it had to be extended to the regional level, closer to service delivery points.

It was the role of the NCOP to enhance intergovernmental relations. The provinces had to allow the NCOP to intervene, as in the case of the O R Tambo District municipality. The municipality had written to the NCOP, and the National and Eastern Cape provincial treasuries, CoGTA and the Eastern Cape Finance MEC, had met around a table and carried matters forward.

Committee matters

The minutes of 24 May, and 5 and 12 June, were adopted without amendment.

The Chairperson said the Committee was to meet on the coming Friday at 9h00. There would be a briefing on the Public Audit Amendment Bill on Tuesday, 26 June. Advertisements for public hearings were in the newspapers. There was an invitation to the Ad Hoc Committee on 27 June. There would be an engagement with the Provincial Treasury of North West Province, which had been placed under section 100 administration. The meeting was late because it had not been known whether it was section 100(a) or (b). A letter had been received only in the previous week. He had consulted with Adv Jenkins, the Parliamentary Legal Adviser, about it.

Mr Motlashuping noted that public hearings on the Expropriation of Land Act were due to start. There would be clashes.

The meeting was adjourned.   

 

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