National Treasury Quarter 1 performance; Deviation/Expansion requests to Office of Chief Procurement Officer

Standing Committee on Appropriations

21 August 2018
Chairperson: Ms Y Phosa (ANC)
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Meeting Summary

The National Treasury (NT) told the Committee that in the first quarter of 2018/19, government entities had under-spent their budgets by nearly R10 billion, which was 5.3% of the funds available. The Departments which had contributed the most to this under-spending had been Higher Education and Training (R2 billion), Police (R1.8 billion) Science and Technology (R1.16 billion), and Energy (R612.8 million). Departments which had over-spent included Transport (R705.8 million), Science and Technology (R341.1 million) and Home Affairs (R143 million). However, at this stage there was no cause for concern in respect of either under-spending or over-spending.

The Committee had requested NT to look into spending by public entities. NT responded by describing the different categories of public enterprises, and said they made their revenue either through levies, user charges or appropriation, or a combination of the three. It said it struggled with dealing with public entities, because there were several challenges in their reporting. The first was that data provided by public entities either to their relevant executive authorities or NT, was not on the Basic Accounting System (BAS) and thus could not be verified. They did not have budget programme structures like a department, that were approved by the relevant treasury so their programmes were not necessarily linked to deliverable objectives, and their spending was only in economic classification terms. Accounting standards were also different -- departments used a modified cash basis versus accrual accounting for public entities. NT gave the Committee a simplified explanation of the differences between the accounting systems.

Members expressed concern that the Department of Water and Sanitation always tended to perform the worst. What was alarming was that it had under-spent by R1.16 billion, which was two-thirds of what they should have spent. They wanted to find out what the cause of delays in the transfer of payments within departments was, and how they were supposed to function effectively if there were delays. Why had there been delays in the transfer of grants and bursaries by the Department of Higher Education? Most university students had not received their bursaries and grants, and there was a need to check on this before the situation got out of hand. A Member wanted to know why the country had spent billions to develop the Integrated Financial Management System (IFMS), and yet this had still not materialised after many years of development. Why were departments paying for buildings that they were not occupying? Why had essential teaching posts still not been filled?

Meeting report

The Chairperson said the primary objective of the mandate of the Committee as provided for in the Public Finance Management Act (PFMA) was not only to ascertain whether spending patterns of departments were included in the budget, but also to look for value for money. The National Treasury (NT) knew the approach of the Committee, which was to be taken through the figures of the financial statements, income statements and expenditure reports. The Committee appreciated the difficult role that NT played in supporting the objective of value for money in the use of public funds.

National Treasury financial performance: Quarter One

Dr Mampho Modise, Deputy Director General, National Treasury, said that in Quarter 1, there had been under-spending of R9.86 billion. This was 5.3% of the total budget. The under-spending was mainly attributable to the following departments:

Higher Education and Training

The R2 billion under-spending was mainly attributed to delays in the transfer payment of the earmarked grants in the university education programme and to non-profit institutions in the Technical and Vocational Education and Training (TVET) programme.

Sport and Recreation

Sport and Recreation under-spent by R183.4 million, which was because of delays in making transfers and subsidies to the provinces, non-profit institutions and departmental agencies. It was mportant to note that for the first quarter, even though NT monitored it, it was not a very strong indication of what was happening over the year. This was because if one transferred two days to the quarter end, it would be reported as an under-spending. NT tries to highlight the departments that should be called at least at the second quarter of the budget, otherwise during the first quarter the departments were trying to draft contracts and to clear the transfers, and this took time. NT did not see a big under-spending for Sport and Recreation for now, as most of the transfers took place two to three weeks after the first quarter because of how NT reports, so it would look like an under-spending. So there was no need to be calling here yet. In the second quarter, NT would have a good idea of their spending and would let the Committee know.

International Relations and Cooperation

This department showed under-spending of R488 million. This was because of outstanding invoices for the Public-Private Partnership (PPP) unitary fee and final payment certificates for different projects.

Water and Sanitation

For Water and Sanitation, there was under-spending of R1.16 billion, mainly due to slower than projected transfers to the Water Trading Entity and various water boards.

Cooperative Governance and Traditional Affairs

CoGTA had also under-spent by R462 million due to delays in transfers to the Municipal Infrastructure Support Agency (MISA) and the transfers to implementation agents for the Community Works Programme.

Energy

The other department that showed under-spending was Energy, with R612.8 million. This was because of delays in the approval of the implementation plan for the non-grid Integrated National Electrification Programme (INEP), and delays in transfers to Eskom for INEP. The Department and Eskom finalised the reporting framework only in the last month of the quarter.

Police

The police under-spent by R1.8 billion, mainly under goods and services and compensation of employees (CoE) due to delayed invoices from the Department of Public Works (DPW) and delayed implementation of the 2018/19 annual cost of living adjustment for the employees.

Independent Police Investigative Directorate

Lastly, there was the IPID, which under-spent by R23.2 million, mainly under CoE and goods and services as a result of vacant posts, and non-payment of the lease for the head office due to a pending legal dispute between the DPW and the landlord.

There were also some departments that showed overspending.

The Department of Home Affairs (DHA) showed an overspending of R143 million which was 7.2% more than the set target for the quarter. This was a result of payment made to the Government Printing Works (GPW) for issuing smart ID cards and passports. There was also overspending on transfers and subsidies which were social benefits, resulting from payment for leave gratuities due to resignations, dismissals and death. Overspending on payments for capital assets was mainly due to expenditure being budgeted as current expenditure, and funds were shifted only whenever expenditure of a capital nature was incurred. Excess expenditure would be catered for through virements by the Department, so it would need to apply to the NT for virements to endorse this spending.

Another department that overspent during first quarter was Science and Technology, which overspent by 19.2%, or R341.1 million. The variance in spending was mainly due to the payments made in advance to the SA National Biodiversity Institute (SANBI) and the South African Research Chairs Initiative (SARChi), because the contract was concluded earlier than anticipated.

The Department of Transport also overspent by 7.7%, or R705.8 million. This was mainly due to transfers to the Passenger Rail Agency of South Africa (PRASA). This was to make up for operational transfer payments that were not paid to PRASA in the previous financial year.

Looking at the under-spending by economic classification, there was under-spending in transfers and subsidies of R3.8 billion, or 2.8%. This was because of delayed transfers of earmarked grants to universities by the Department of Higher Education and Training (DHET), for the INEP, to the Community Work Programme and to the Water Trading Entity. As indicated earlier, the DHET was the department that showed the biggest under-spending for the first quarter. Capital spending in the department had been under-spent by 46.3%, which was equivalent to R1.7 billion. This was due to slower than expected spending on the indirect components of the Regional Bulk Infrastructure Grant (RBIG) and the Water Services Infrastructure Grant. There was also under-spending in goods and services of R2.72 billion, or 18.8%, which was mainly due to delayed invoices from various service providers.

There was also under-spending in compensation of employees. Because of a ceiling for CoE, NT had expected the departments to under-spend, so this was not unexpected. Overall, the under-spending was R1.6 billion, equivalent to 4.1%. The departments that under-spent the most included Correctional Services, by R421 million, and Police, by R453 million, due to the delayed implementation of the 2018/19 annual cost of living adjustment for employees. There was also International Relations, which showed under-spending due to expenditure at 12 foreign missions not accounted for in the compensation expenditure, as it had been reported only in July 2018. Defence, however, spent more than targeted on their compensation -- R140 million -- as a result of the compensation of employees’ ceiling, which did not support the current strength of the Department. The Department should be requested to brief the Committee on their CoE challenges and how they planned to deal with it if this trend persisted.

If one looked at the staff numbers, there was a gap of 11 329. This was mainly coming from the DHET, with a gap of 6 622 in personnel numbers. This was because it was very difficult for the Department to process the high number of applications received -- if they advertised for 2 000 of their vacancies, over 100 000 applications would be received. So for them to sift through the applications to shortlist candidates took a long time. In Justice there was also a gap of about 744 due to natural attrition and a decision by management to fill only critical vacancies.

After this summary of spending patterns for the first quarter, the rest of the presentation was a very detailed analysis of spending outcomes, which could be focused on outside the meeting. These were the critical departments in terms of spending patterns in the first quarter.

Public entities

During the NT’s last meeting with the Committee, Members had requested it to look into spending by public entities. It had decided for the benefit of the Members it would start with a bit of a background, which was part of the Appropriation Bill. Basically, there were three types of public entities in the PFMA. The first were the constitutional institutions, like the Public Protector, which were part of the PFMA. Then there were Schedule 2 public entities such as ESKOM, which were not part of the PFMA. Lastly, there were Schedule 3 entities which formed part of the PFMA, and which included national government public entities such as Iziko Museums, national government business enterprises like PRASA, provincial public entities (e.g. EC Parks & Tourism Agency) and provincial business enterprises (e.g. Ithala Development Finance Corporation). Provincial entities did not form part of the PFMA, but formed part of the Division of Revenue Act (DoRA).

Public entities make their revenue either through levies, user charges or appropriation. Further, they could make revenue through a combination of any of the three ways. For example, the Unemployment Insurance Fund gets its revenue from levies; SANRAL gets it from user charges; and the Nelson Mandela Museum from appropriations, as transfers from national government.

Accounting systems

NT struggled with dealing with public entities, because there were several challenges in their reporting. The first was that data provided by public entities either to their relevant executive authorities or NT, was not on the Basic Accounting System (BAS) and thus could not be verified. They did not have budget programme structures like a department, that were approved by the relevant treasury so their „programmes‟ were not necessarily linked to deliverable objectives and their spending was only in economic classification terms. Accounting standards were also different -- departments use a modified cash basis versus accrual accounting for public entities. The main difference between accrual and cash basis accounting lay in the timing of when revenue and expenses were recognised. The cash method accounts for revenue only when the money was received, and for expenses only when the money was paid out, whereas in accrual accounting, revenue/expenditure was recorded even if the cash had not yet been received or paid.

In accrual accounting, when one purchased a long-lived asset, such as a vehicle, a building or a computer, one did not immediately write off the full cost as an expense. The cost was rather spread over the expected life of the asset, an accounting procedure known as depreciation. In relation to capital expenditure in public entities, only the portion of funds that would be spent was recognised as expenditure, and the rest was accounted for on the balance sheet as deferred income.

The Chairperson interjected, saying that it was important for the NT to explain this part in a way that Members would be able to easily understand so as to engage it fully.

Dr Modise replied that she would use an example. In national departments, when the Police department bought a car for R500 000, the department would record R500 000 as expenditure. That was in national departments. In public entities, they did record the R500 000 as an expenditure, but recorded only the depreciation of that vehicle. This meant the R500 000 would be recorded as depreciation for five years. So they did not record the physical cash. This was a problem, because in their books, the expenditure would be less because of the depreciation, while in actual sense, they had spent the R500 000. That was why it was important to look at how much cash they had, rather than looking at their income statements. The income statement was a good reflection of the books, but it did not mean that that was the money the entity had.

The Chairperson interjected again, and asked whether one looked at the cash flow.

Dr Modise replied in the affirmative. Further, there were public entities that offered services and used invoices. So in their books, they indicate the invoices as cash before even transferring it. Therefore, to determine what actual money they had, one had to look at the invoices. This was why it was difficult to look at the accrual system versus the cash system, which gave a true indication of how much they had and how much they had spent.

Mr A McLoughlin (DA) also interjected, and asked what the point of preferring the accrual system over the cash system was.

Dr Modise replied that for most companies, it was internationally recognised that for financial statements it was best practice to use the accrual system. However, for the departments, as they budgeted on a cash basis, they were forced to use the cash system. NT was trying to meet with the public entities halfway, but as indicated, most companies used the accrual system.

The Chairperson asked why NT used the cash system.

Dr Modise replied that NT did that when they gave public explanations in the Appropriations Act estimate of national expenditure, to try and standardise this. However, the entities had to publish their annual financial statements, and to do that they had to use the accrual system.

There were also types of public entities which did not enable a comparative analysis. These included service delivery agencies, regulators, development finance institutions and social security funds.

Lastly there was the issue that some public entities had different financial years from the national government’s financial year. For example, water boards operated on the municipal financial year, from July to June, and not on the April to March financial year. This did not mean that the NT was not able to do its work, however. It had come up with the entities’ cash flow statements, but because of these challenges there was a quarter’s delay in reporting, so the NT could present only on the 2017/18 financial year, and not on the 2018/19 first quarter.

Compensation Fund

The first institution that Members had requested the NT to look at was the Compensation Fund (CF). The most important thing to note was that the Fund generated its revenue from an assessment levy on employers. The largest spending item was cash paid to households for Compensation for Occupational Injuries and Diseases Act (COIDA) claims. The claims paid amounted to R2.5 billion which was R53.4 million less than budgeted due to the payment of claim backlogs. The overspending on CoE was not a cash transaction, but an accounting adjustment due to the sharing of personnel costs with the Department of Labour for shared staff. Slow spending on goods and services was due to invoices for the relocation costs which still had to be paid, and the cancellation of the system enhancement tender.

Legal Aid South Africa

Members had also requested the NT to look into Legal Aid South Africa. LASA received most of its funding from deferments, so their income was recorded as transferred income. Transfers received amounted to R1.75 billion, but entity had also realised income from other receipts -- mainly sales of goods and services -- totaling R25.9 million. Expenditure on CoE had amounted to R1.41 billion against a projection of R1.45 billion, resulting in under-spending of R31.1 million, which was mainly the result of vacancies arising from natural attrition. Expenditure on goods and services amounted to R332.6 million against a projection of R324.3 million, resulting in overspending of R8.3 million – mainly the result of higher than anticipated spending on bank charges, communication expenses, computer services, and water and electricity.

National Empowerment Fund

The National Empowerment Fund (NEF) overspent by R234 million on its operations due to interest earned being insufficient to cover operational costs. This was because loan disbursements and loan repayments was a zero-sum game, and the NEF needed to earn a return on either the interest that it charged or the dividends it received from investing equity in companies. What was a bit worrisome about this Fund was that it had a negative net change in cash of R211 million, resulted in a decrease in the overall cash position to R1.13 billion. However, this amount was sufficient and the entity just needed to make sure that they did not continue with the trend of spending more than what was there, as then it would be sustainable. The NT would notify the Committee if it saw the negative trend continuing.

National Health Laboratory Service

The National Health Laboratory Service’s (NHLS‟s) cash balance had increased from R389.9 million, which was the opening cash balance for 2017/18, to R1.1 billion as at the end of the financial year. A total of R7 billion, of which R3.7 billion was on goods and R3.3 billion on CoE, was spent against the revised forecast of R7.3 billion. The expenditure forecast was revised upward by R1.3 billion, in line with the increased revenue. There was also no need to worry over this entity.

National Research Foundation

The next entity was the National Research Foundation. Their main source of income was transfers. It also had unclassified revenue as a source of other income, and the sale of other goods and services. Its expenditure was mainly on CoE and goods and services. Cash available amounted to R462 million, which was 15.2%, or R82.7 million, less than expected. This was still sufficient and had not warranted the NT to worry over it.

National Skills Fund

The National Skills Fund’s primary job was to transfer money and as such, they always had funds and it was very unlikely to find under-spending.

National Student Financial Aid Scheme

Then there was the National Student Financial Aid Scheme (NSFAS). As Members were aware there were currently some administrative issues with the entity to sort out. The entity’s source of revenue was from transfers from the Department of Higher Education and Training, and also some bursary funds and the administration fees charged for these bursaries. The cash available at the end of the year had amounted to R3.7 billion, which was 4.4%, or R153.8, million higher than projected. With entities like this, NT did not want them to have cash in their books because these were entities transferring what they had said they would transfer to the students. The Minister of Education had appointed an administrator to deal with this, and once this was done and the transfers to the students had been made, one would see less cash at the end of the year. With such entities, because they had to transfer the amount received, having less cash at the end of the year was not a bad indicator -- it was actually a good thing, as well as the transfers.

Passenger Rail Agency of South Africa

PRASA generated revenue from the sale of train and bus tickets, rental income from property leasing, and transfers from the Department of Transport (DoT). Cash available at the end of the financial year had amounted to R13.8 billion, which was 12.3%, or R1.5 billion, more than expected. With PRASA, it was not good to have such high cash balances. The NT and the DoT was trying to help them identify this problem. If they could not solve this issue, it meant NT would have to reduce its transfers.

Road Accident Fund

There was also the Road Accident Fund, which generated its revenue from the RAF fuel levy. Cash paid to households was the largest expenditure item in the RAF, which was for claims paid to road accident victims. It had paid R33.9 billion against an adjusted budget of R33 billion. The net cash flow from operations R148.7 million less than projections as a result of increased payments to households for compensation related to road accident claims. As a result, cash available at the end of the financial year had been R114.2 million less than projected. There were also debts amounting to R200 million which would have to be dealt with at some point.

South African National Parks

There was no trouble with SANParks. They generated most of their revenue from gate fees, accommodation, conservation fees and activities and transfers from the Department of Environmental Affairs (DEA). The biggest portion was the transfers from the Department. They spent most of their money on CoE and goods and services.

South African Revenue Services

The revenue of SARS was comprised of National Treasury transfers, commission fees and interest income from excess funds. The main thing they spent on was transfers to stakeholders, which amount was lower than the budget due to payments for CoE and goods and services. Cash flow from financing had been R11.4 million higher than expected due to the repayment of a controlled entity loan. NT thinks that they are very sustainable and were doing much better than any other institution with the funds that they had, so there was nothing to worry about.

Unemployment Insurance Fund

Lastly, there was the Unemployment Insurance Fund. As Members were aware, this entity had surpluses because of the transfers they received, and what they were spending, so there was not anything that was shocking or worrisome in their books. Benefits paid had amounted to R9.2 billion, which was R3.1 billion less than budgeted due to delays in finalising payments to ex-miners. Their spending was mainly on goods and services. This was due to the payment of management fees to the Public Investment Corporation (PIC) and commission to SARS for the collection of UIF contributions.

Discussion

The Chairperson thanked Dr Modise for her informative presentation, and especially with regard to the simplified information.

Mr McLoughlin said he did not find an issue with most of the areas. His main problem was with the Department of Water and Sanitation. In the past it had let people down and made the Committee look bad because of its several mistakes. He was concerned that it was a department that tended to perform the worst all the time. What was alarming was despite their history, when one looked at the first quarter the Department had under-spent by R1.16 billion, which made up two-thirds of what they were supposed to spend in the first quarter. They had lower than projected transfers -- what were the causes of the delays in these transfers? Why was it that there was always a gap, and they could not seem to catch up? Members had decided that that was how the system worked, and there was a need to transfer money to departments so that they could do their work. How were departments supposed to function effectively if there were delays in transfers? What was the NT doing so as to smooth this process out?

Regarding the departments which had overspent in the first quarter, although NT had said there was nothing to worry about, it was worrisome that some departments were spending more than they should be. On the overspending on payments for capital assets by the Department of Home Affairs, NT had indicated that excess expenditure would be catered for through virements. Why was the system not being followed religiously?  Were there were any mechanisms to curb excess expenditure?

There was also the issue of under-spending in CoE in the Department of Correctional Services to the tune of R421 million, and R453 million in the Department of Police. Why were employees being prejudiced? Why had there been delayed implementation of the 2018/19 annual cost of living adjustment for the employees? Why should employees suffer? And why should the Committee not worry about this if employees were suffering? Surely this could be prevented. It seemed like people were being punished for working in these departments. Also, what does the NT mean when they say “compensation of employee ceiling?” The meaning was not understandable. What was meant by this word ‘ceiling’?

Mr B Martins (ANC) said he had an issue with the DHET, where it had been indicated that there were delays in transfers of grants and bursaries. It was almost at the end of the year and most university students had not received their bursaries and grants.

The Chairperson said that everyone knew that under-expenditure and over-expenditure above 3% warranted intervention for the first quarter. There were many departments that had under-spent, and the NT was trying to rationalise why this was so. The assumption was that they might catch up. That was an assumption, so the other assumption was that they might not catch up, and at the end of the year, they would have to suffer a budget cut. What was the NT doing to make sure that this did not happen? All of those who had oversight over expenditure had a role to play. There was a need to show zero tolerance, so that people could perform correctly. At a previous meeting, the Committee had asked NT to come up with a way of addressing the issue of delays of transfers. The fact that there were delays means that this had never been addressed. NT had also made a public statement to this issue. It was an old historical issue.

Ms S Shope-Sithole (ANC) said she was a very worried citizen. With all the unemployment, the regime was to blame. Further, the NT was to blame. Any country that had a Treasury like this one would experience these problems. When would the NT finish the Integrated Financial Management System (IFMS) so that it could control all funds anywhere in South Africa? The country had used billions to develop the system and up to today, the country still did not have it. The IFMS was a very good project. It would make everyone’s work easy. Until this project was completed, these stories would always be there. Money in SA was controlled by the PFMA and the Companies Act, as everyone knew. However, the NT should have control of the country’s money. That was a constitutional mandate. Members did not need stories -- they needed to know when the IFMS would be completed.

National Treasury’s response

Dr Rendani Randela, Chief Director, NT, told Members that there was a similar concern about the under-spending on compensation of employees. There was a three-year plan that had been entered into that was supposed to run through from 2017 to 2019. Departments could enter into an agreement that they would transfer, so there had been delays in transfers, hence under-spending. Now that there was no agreement in the second quarter, it would appear.

On the issue of the Department of Defence, in the 2016 budget a ceiling had been set for the compensation of employees’ budgets across government departments. When the ceilings were set, part of the plan had been that departments had to come up with a plan, and how they would fit in to the plan. What there was currently was that for the members in the Department of Defence, the budget that was there was not enough to cover all of them, and that was why there was a ceiling.

On the issue of delays in invoices, the criminal justice system departments -- police, defence, correctional services -- were the biggest clients of the Ministry of Public Works. The model that was being used currently was the wrong model, because the problem was that the DPW gets billed for buildings that they are not occupying. If a department stayed in a building and before the end of the year it migrated, it would still get the bill for the rent. Further, there was also a problem with the DPW undertaking capital works for all departments. Departments were suggesting that they should be left to do that on their own. For example, the Department of Defence, that had defence-wise information, had said that they could build and maintain their own buildings. However there was a wall, and this was that the functions of the DPW were legislated and if a department wanted a project, it had to negotiate with the DPW.

Ms Ulrike Britton, Chief Director: NT, added that with regard to transfers, there was a financial management system in place, and this included transfers within provinces. A department could state that they were not able to transfer money within the stipulated time because of the formalities and money involved and paperwork. What was inexcusable was if a department knew it ought to transfer money and intentionally delayed this.

The Department of Water and Sanitation was an anomaly. It was expected that the audited financial statement of the Department would come out at the end of this month. At that time, the NT would be able to know what was happening with the Department.

Regarding the Community Works programme, there was a new operating model within the Department that had been implemented this financial year. The transfer from the old slower system to the new system had resulted in under-spending in the wage component, hence fewer transfers.

As for what mechanisms NT had put in place, when there was under-spending or over-spending in the first quarter, NT sends a formal notice to departments to allow them to take corrective measures. However, real over-spending or under-spending would be accurately noticeable only towards the end of the financial year, so currently it was not an issue that warranted a lot of concern. The main work of the NT was to prevent unauthorised expenditure. Accounting officers had been given powers to manage the affairs of funds, so the question was how to hold public officers accountable. It was only the Auditor General (AG) who, at the end of the year, could give a picture of how the funds had been spent.

Dr Modise said that the good thing with the DHET was that it had appointed an administrator to ensure that any NSFAS backlog had been cleared with regard to bursaries and grants to students. NT had also offered to assist in case they needed help with the administrative issues. The NT thought that the appointee, Dr Randall Carolissen, would do a good job in terms of clearing all the issues within the system with regard to transfers and payments. There had been a lot of complaints from universities that the situation with students had been heightened, so he would be aware of the issues with students and would make sure that this was sorted as soon as possible.

On the question of whether there were mechanisms to determine outcomes in spending, there were two types of mechanisms available to the Treasury. The first one would be at the beginning of the year, when they submitted their estimated drawings for the rest of the year, and then each month their revised spending. NT chose to bring the drawings so that the departments could actually review their yearly plans. If they came every month with updated numbers, then the margin would be very small, so NT enforced the estimated drawings so that when they were coming up with them, they had to think hard what it was that they wanted to achieve that year. If by the second quarter they had under or over utilised their projected spending, then they had to come and explain why they had not listened to us.

On the issue of the IFMS, NT had asked the Department of Treasury to explain what was happening. This was because the Department was like any other department that it had to work with. But otherwise, NT was also interested to know what the issue with the IFMS was (Members collapsed in laughter).

Discussion

Ms Shope-Sithole asked whether NT had any suggestions regarding how any of the relevant Acts could be amended to solve some of these issues. NT had said that it was the chief executive officers (CEOs) or Accounting Officers who ought to be held accountable, but as one knew with any piece of legislation, what one thought they should do was not what they actually did. There was need to amend something. She had been present when the issue of IFMS had been mooted, and there had been very high expectations, but currently there was doubt whether we were achieving what we should have achieved with it by now. Was it that there were problems with the Act itself, or was it a matter of training departments on budgeting?

Mr McLoughlin asked what the NT meant by stating that departments were getting invoices for buildings that they did not occupy. Surely there must be some form of regulation around that? Also, all these agencies had properties that they controlled -- who owned these properties? Were they part of Public Works? Members had noted that many agencies did not even know the properties that they owned.

In the presentation, it was also stated that the DPW was overspending on state funerals. Surely state funerals were not their mandate -- why were they overspending on it, or were Members missing something? When NT talked about PRASA, it stated that cash available at the end of the financial year amounted to R13.8 billion, which was 12.3%, or R1.5 billion, more than expected. Could NT explain what this meant, and how it was possible to have more cash than expected? How did end up with more money if one was misspending it?

Mr N Gcwabaza (ANC) wanted clarification from the NT on the issues of vacancies supposed to be filled by the DHET. What was the NT’s role if vacancies were advertised at the end of a financial year, and by the second quarter students had been learning with some of these essential positions still not filled? The question was how NT dealt with such issues. With transfers, there was usually a process of planning and budgeting by departments, and NT should explain how they dealt with issues when they discovered delays in these transfers, because if they were not transferred, this action impacted other people. On the entities using the accrual system, was it acceptable? There were particular standards set by NT, so was it acceptable that they would use an accounting system that made it difficult for the NT to audit their financial books? There was no way of determining whether they were spending properly or not. It depended on what they told the NT.

Regarding the DPW, how many state properties did it own? NT did not need answer now, as there was a need for a detailed report on this (NT delegation laughed). How much was the DPW spending on these state properties?

The last time IFMS was discussed was over a year ago. NT had informed Members that there was a forensic investigation going on. This had been going on since 2005 and only in 2013 had some anomalies been discovered. More than five years later, investigations were still ongoing and a report was expected. Could NT confirm to the Committee what the current status was?

The Chairperson was concerned that some departments were always under-spending, and yet they were always receiving money. Every cent mattered. There was no way that money could be sent somewhere not to be spent when the money was needed more elsewhere. It could be that these departments were either not able to spend all that money, or it could be that they were overloaded.

On the issue of buildings, it was concerning to note that when one approached a department and asked why a building was not finished, or why this was not happening on the building, all of them pointed to the DPW.

The Department of Water and Sanitation had under-spent hugely in the quarter. This was an issue, as Members witnessed a very big sewage spill in Bloemfontein. Members had been very depressed over this, as well as the conditions that members of the Defence Force were suffering when they had visited the Defence Hospital. One should see the buildings that they were sleeping in. They were very old -- some even without windows to protect them from the cold. Did the NT also do site visits to those military bases? Where NT issued instructions, did it have the teeth to enforce them? For example, the Department of Water and Sanitation could not manage their budget, and if the NT had teeth, why did it not take it over? (NT delegation laughed). This was a serious crisis that needed to be solved.

Ms M Manana (ANC) added that it was true that Members had been very depressed when they went to visit the Defence Force hospital. It seemed that the DPW was really failing to maintain the buildings. At one time, the Minister of Health had requested Public Works to give back the contract, stating that they could do it better than Public Works. The DPW had refused, and this was the current situation. It was time to say that enough was enough.

National Treasury’s response

Dr Randela referred to the issue of getting invoices for buildings which departments did not occupy, and said it was not a case that these departments had, or owned, some buildings or offices elsewhere. If, for example, a department stayed in a building and before the end of the year it migrated and another department came into the building, the department that left would still get the invoice for the rent, because it had not yet been adjusted that they had moved out. Then there were other departments that just kept getting invoices for the buildings. This was the case that she had referred to, and not buildings that were actually empty.

The Chairperson asked whether this other department that came in still had to pay or not.

Ms Britton replied that the DPW was the custodian of the public buildings. Normally, two departments would not pay. The problem arose when the departments were using the accrual system, and so if they received an invoice for the rent for a building that they had vacated, it would still reflect in their books as an invoice, because that was what NT looked at. However, it was only the DPW that paid the Bill.

Dr Randela added that there had been a question regarding the DPW paying for state funerals. This was part of their mandate in the legislation, so they did this.

The Chairperson commented that there was a problem with this legislation. There was a need to amend it, as the DPW seemed to be having more than they could take on.

Dr Randela in terms of the turnaround strategy at the DPW, they were trying to manage differences between contract and project management in the Department.

On the question on Legal Aid budget and whether it was enough, surely it was not enough. This was because in terms of court coverage, they were around 80%, and the target was for them to be in each and every court. Another problem was that in the courts where they were, they did not have enough in terms of human resources and equipment.

On the issue of site visits, the NT undertook site visits, and had for instance visited the Department of Correctional Services facilities as part of their monitoring. Site visits was one of the mechanisms that the NT used to enforce budgetary policies in departments.

Dr Modise replied on the issue of vacancies that were yet to be filled in the DHET, saying the challenge had been anticipated. The high number of applicants, which had been 100 000, had surpassed by far the number of vacant posts, which was 2 000. For purposes of fairness, the DHET had had to go through each and every application to find the most suitably qualified candidates. As the process had begun before the end of the last financial year, it would be completed. However, the NT had no way of forcing the Department into hiring within a stipulated time. On the other hand, the Committee could.

Regarding the accrual system, it was acknowledged as international best practice for state departments to use this system and not the usual ones that companies use. Most governments in the world used it, and that was the justification for it.

As for the “elephant in the room,” that is, Public Works, NT had requested the Department to give a detailed report on the state properties that were under their custodianship. The reason that members of the NT delegation had laughed when this question was asked was because this was not the first time that NT had asked for this information. However, the DWS was very reluctant to give it, so NT was devising its own ways of coming up with the information. Public Works always became defensive, because it thought NT wanted to supplement their role, and therefore they did not give information.

Other departments like Defence were also secretive. Defence was one department that had a lot of property that they did not use. NT had requested Defence to give them information on properties under their control in order to help them manage them -- for example, disposing of property that was not in use so as to realise income that could be used by the Department. However, the Department had declined all requests and had refused to give this information. This was because they feared NT might recommend a negative action against their property. However, this was not the case -- NT was just trying to help departments manage their properties in a sustainable manner and also give advice regarding how to make income by the disposal of unnecessary property.

NT would continue trying to collect information regarding public entities and would continue making improvements in the systems to ensure this.

Ms Shope-Sithole commented that there was nothing Members could do about the DPW. The only thing they could do regarding this was to amend the PFMA. The NT was encouraged to make suggestions on how best to amend the PFMA so that one did not end up with too many bosses. Treasury was able to manage the financial system. There was need to decentralise functions from the DPW, because departments needed to be able to do their own things. This was informed by the challenges that were being faced currently. Her suspicion was that there was a lot of money being lost in the system. A lot of money in South Africa was going down the drain because of these problems. What they could do now was try to do the best with what they had. There was need to put departments in their place. There was no way that one could rely on the words of accounting officers. If information was requested, it should be given and no excuses should be made. This was not a church. This was public money.

The Chairperson said that the NT had indicated that the departments were not giving information on their properties. Were they not submitting their asset management reports to the Treasury? Were they not also submitting procurement and financial management plans? It was also interesting that NT had visited the Department of Correctional Services. He asked if it would like to share its report with the Committee.

Dr Modise replied that they would share the report with the Committee, for them to go through it. The NT would also undertake an independent audit of the DPW to ascertain the number of properties under their ownership, and would then compile a report and present it to the Members.

Ms Shope-Sithole urged Members that there was need to push the agenda for the IFMS which, if implemented, would put the country on the correct track. The country had used billions for the system and up to today, it still did not have it. The IFMS was a very good project, and there was a need to fast-track it.

The Chairperson said this had been a very important meeting, as there was need to make sure that state entities accounted for the financial management of public money. There was a need to resolve some of the outstanding issues that had been observed in the first quarter.

The meeting was adjourned.

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