Health Sector 2017/18 Annual Report analysis by AGSA & FFC

Meeting report

The Chairperson welcomed the Financial and Fiscal Commission (FFC).

Ms E Wilson (DA) wanted to know whether the Committee was in a position to quorate.

The Chairperson responded that in a meeting where no decision is required and only a presentation is being made, the Committee does not need a quorate. She also confirmed having received apologies from 5 Members.

Briefing by Financial and Fiscal Commission (FFC)
Mr Daniel Plaatjies, Chairperson, FFC, stated that part of the job of the FFC is to look at socio-economic systems. The FFC is required by the Constitution to annually table before Parliament its assessment on the divisions of revenue in relation to the financing and fiscal policy. He said analysing the budget is easy, but that the job of the FFC is also to look at the collateral effect of legislation. He added that the FFC is very interested to talk to the Committee because health sits in the area of service delivery after the Department of Education. He suggested that the Committee should have summoned the FFC earlier since there is a lot of unfettered advice the FFC is able to offer to the Committee. He informed Members that conditional grants are usually put in place to deal with spill over of services delivered in one province which has spilled over to another province. He told Members to take note that the equitable share allocation is not a proxy for the budget.

Mr Plaatjies stated that the main challenges affecting the Health Sector are the following:
Human capital management: attracting appropriate medical professionals and the management of health services is a challenge. The health facilities need people with an internal understanding of the system to run the facilities. The staffing should be appropriate staffing, with the administration staff being less than medical staff.
Maintenance of infrastructure: buildings are required which can withstand weather changes and services need to be close to the people. On medical technology and equipment, he advised that it does not help to invest in medical equipment that cannot be maintained
Supply chain management: although procurement can happen at provincial level, there is benefit in pooling together and purchasing in bulk. He noted that buying pharmaceutical drugs is expensive and given universal health patterns, it is conceivable that drugs are required and that there should be a pooling agency allowing one agency to buy drugs on behalf of the country
Health financing: he stated that the claim that health is underfunded cannot be justified when costing has not been done. The question should be is: what is the standard of measure of financing health?
Governance leadership and management: should look at the nature and extent of how leadership looks at health services. Health is governed at the provincial level, the notion of the national government taking over in some instances are conversations that the Committee needs to be having going forward. The escalation of prices after contracts have been signed reflects on leadership and the people responsible need to understand cost and pricing and contracting.
On health outcomes, he reported that the roll out of antiretrovirals (ARVs) under extended period, the prevention of mother to child transmission and introduction of new child vaccines has improved the health of South Africans. The rate of improvement is however not sufficient to meet current MTSF targets. On life expectancy at birth, the MTSF target for 2019 is 70 years, yet in 2016 life expectancy was sitting at 63.8. In respect of under 5 mortality rate, the MTSF target is 33 under 5 deaths per 1000 live births by March 2019. However in 2016, the under 5 mortality rate was at 34. On neonatal mortality rate per 1000 live births, the MTSF target was 8 neonatal deaths per 1000 live births, in 2016,the number was 12. The burden of non-communicable diseases(NCDs) is on the rise and the death rate has surpassed those related to HIV and TB since 2009. The progress monitoring of NCDs is also poor due to lack of reliable information. The target is to reduce tobacco use by 20%, increase treatment for mental disorder by 30 % and increase treatment for hypertension and diabetes by 30%.

Mr Eddie Rakabe, Programme Manager, FFC took Members through the national and provincial budget analysis. National health spending has been sustained at an average rate of 13.6% of the total budget. The total health budget amounted to R191bn in 2017/18 of which 3% is allocated to the national department (NDOH) (excluding conditional grants) and 94% to the provinces. The health budget remains under pressure because of growing number of medically uninsured population, the exchange rate depreciation driving up costs and the salary increases which are crowding out other important health inputs.

The NDOH received R42.6 bn in 2017/18 increasing from R38.5bn in 2016/17.The NDOH achieved a 99.5% spending performance in 2017/18. Much of the spending comprises conditional grants transfers to provinces. However, the NHI planning and systems showed under spending of 10% in 2017/18.

For Provincial health budgets, he noted that provinces account for a larger share of the national health budget. Salary spending constitutes 67.9% of total current payments in 2017/18. Non-negotiable budget line items such as laboratory services and medicines showed the highest budget growth. Gauteng and KZN have the highest health allocations. This was a decision taken at the provincial executive level and it is warranted because of the population of the two provinces. Limpopo, Eastern Cape and Free State have higher than average Compensation of Employees (CoEs) as a share of current payments.

Provincial budget oversight issues Identified include the following:
Controlling of CoE. CoE expenditure amounted to R112 bn in 2017/18 increasing from R 92 b in 2015/16. During the same period personnel headcount declined from 309 000 to 302 000. CoE is likely to experience additional pressure arising from minimum wage agreement to Community health Workers (CHW) and absorption of the current cohort of doctor interns from the Cuban Medical Programme. The CHW needs to be standardised across all provinces in terms of training and operational systems. The Control of CoE spend must be accompanied by efforts to balance the distribution of health care professional within and across provinces.
 

An FFC study found that while accruals are justifiable results of budget pressure, accruals are mainly caused by poor financial governance. The Budget allocations for the National Health Laboratory Services (NHLS) are growing but provinces still fail to honour their laboratory services payments. He cautioned that non payment places NHLS at risk since provinces contribute to 90 % of the revenue of the NHLS.

On the spending and output performance of health conditional grants he provided the breakdown as follows:
Comprehensive HIV and AIDS grant was allocated R 15.3 bn in 2017/18 and achieved 100 % spending performance. The grant performance may be diluted by the introduction of a new HIV/AIDS: community outreach services component stipend for CHW.
Health Facility Revitalization Grant achieved 97 % spending from the allocated R 5.4 bn in 2017/18. The grant outputs include; planning of 33 new facilities, equipping 33 facilities, constructing 12 facilities and maintaining 31 facilities. He noted that the AG highlighted concerns regarding availability of reliable data to verify deliverables associated with the health facility revitalization grant
Health Professionals Training Grant spent 100 % of the allocated R 2.5 bn in 2017/18.
National Tertiary Services Grant spent 100 % of the allocated R 10.9 bn in 2017/18
National Health Insurance Grant: he reported that the grant is divided into 5 indirect sub components. The continuous under spending of NHI grant is worrying given the introduction of NHI fund. The Constant iteration of the grant also creates implementation uncertainties. The grant has also been funding priorities unrelated to the NHI.

He pointed out some of the FFC Recommendations on health for 2019/20 to be as follows:
National Treasury and Provincial Treasuries should develop a framework or criteria for determining serious financial strain with clear measurable financial and non-financial factors that can be monitored
NT and NDOH should allocate part of the 2018/19 MTEF health infrastructure allocations to gradually set off expenditure accruals
NT should ensure that the framework for health infrastructure conditional grants accommodate flexibility during periods of protracted fiscal constraint.
NDOH needs to improve performance planning and monitoring tool. There is no need to put performance targets if there is no monitoring.
Spending on NHI grant should focus on activities that form the core of health system for NHI delivery
Encroaching on conditional grants by new unrelated priorities must be minimised
Parliament should focus its oversight efforts on under achieved performance targets where there has been 100 % expenditure against the budget

Discussion
Ms Wilson was concerned that FFC had reported that the progress monitoring of NCD outcomes was poor because of lack of reliable information. She also noted from the report that there was no supporting evidence confirming that the hospitals achieved 75 % compliance with core standards. The FFC was also unable to confirm facilities compliance with infrastructure norms and standards. The situation is alarming and makes the Committee's job difficult because it is not getting accurate information. She asked what the FFC is doing to assist it to get information. She also confirmed that the Minister of Health had re-signed the agreement signifying continuance of the Cuba Programme and wanted the view of the FFC on the Cuba Programme.

The Chairperson sought clarification on Mr Plaatjies remarks that the administration staff should be less than the clinical staff in the facilities. She also wanted to know whether the FFC was facing any challenges in getting information from the departments. She noted that having identified the challenges bedevilling the health sector, FFC should focus on the recommendations. On the CoE, she pointed out that it is possible to have a lower head count but high compensation depending on the levels of employment. She advised that FFC should have given a breakdown of the head count and compensation per particular level, which could have given a clearer picture.

Mr Rakabe responded that failure to get supporting evidence could be because of lack of resources. With no resources, the entities when doing the performance audits are unable to do the physical assessments. He added that the AGSA needs to be complemented by the DPME in assessment, it is almost impossible to do a sector wide assessment and that is the reason why the assessment is done in piecemeal. The FFC takes the information given as true until the time when the DPME or the AGSA will have a specific performance audit. On the discrepancies between the CoE and head count, he agreed that it could be as a result of an imbalance between the core staff and non core staff. The implementation of the occupation specific dispensation (OSD) could also have contributed. The FFC did a study 3 years ago on managing personnel and it will be willing to share the report with the Committee. On the question of challenges in getting information from the departments, he stated that the FFC interacts and consults with the NDOH on a regular basis and in doing so it is careful to retain its independence.

Ms S Kopane (DA) asked FFC to share with the Committee its study regarding the accruals. She asked whether the DPME, AG and the FFC sit down together and share the information received.

Mr Rakebe confirmed that the FFC consults with the DPME and the AGSA, and that some of the information presented is from AG report. The FFC sometimes has to rely on other resources.

Ms Kopane wanted to know whether it is the specialists who are lacking in the hospitals or the equipment or whether it is a combination of the two. She stated that in some facilities the equipment may be there but there are no specialists while in others the specialists are there but there are no equipment. She asked whether the FFC had picked that up.

Mr Rakabe responded that the FFC had picked that up in the hospitals and that the position justifies realignment of the different conditional grants, to ensure that the training grant provides support for specialist equipment.

The Chairperson thanked the FFC for the presentation and confirmed that there is nothing preventing the FFC from approaching the Committee on any issue it would want to engage the Committee on.

Briefing by AGSA on Health Portfolio Audit Outcomes
Ms Thabelo Musisinyani, Senior Manager, AGSA, began by conveying apologies from the AGSA executive. She informed members that the AGSA as an organisation reflects on the audit work performed to assist the Committee in its oversight role. She confirmed that the annual audit examines three areas;
Fair presentation and reliability of financial statements.
Reliable and credible performance information for predetermined objectives
Compliance with key legislation on financial and performance management

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She reminded Members that the AGSA expresses the following audit outcomes:
-Unqualified opinion with no findings (clean audit)
-Financially unqualified opinion with findings, where the Auditee produced financial statements without material misstatements or could correct the material misstatements.
-Qualified opinions, where the Auditee had the same challenges as those with unqualified opinions with findings but, in addition, they could not produce credible and reliable financial statements.
-Adverse Opinions, where the Auditee had the same challenges as those with qualified opinions but in addition, they had so many material misstatements in their financial statements that AGSA disagreed with almost all the amounts and disclosures in the financial statements.
-Disclaimed opinion, where the Auditee had the same challenges as those with qualified opinions and could not provide AGSA with evidence for most of the amounts and disclosures reported in the financial statements.

The auditees include the following entities: the NDOH, the Council for medical schemes(CMS), the Office of the Health Standard Compliance (OHSC),the Medical Research Council (MRC),and the NHLS. She added that the underlying theme is accountability. This comprises planning, doing and checking. Planning involves defining targets. There is then the doing where the basics are implemented. Checking involves monitoring by all assurance providers. For accountability to be effective, the NDOH needs to hold the people accountable, plans should be done correctly. There should then action and monitoring. This would result in better audit outcomes translating to better lives for citizens. She insisted that when there is a culture of doing things correctly there is better service delivery.

Overall the portfolio regressed as two entities which were clean for the past two years received an unqualified with findings opinion. Financial statement preparation remains a concern as material adjustments were effected to AFS submitted for audit. The OHSC showed an improvement in the audit outcome from 2016/17 due to effective controls in place and oversight by the assurance providers. CMS regressed from 2016/17 due to inadequate review of the annual financial statements by senior management prior to submission for audit. The MRC regressed due to non-compliance with laws and regulations. One Auditee - the OHSC - was clean with no material findings. The NHLS remained stagnant and had a number of findings on procurement process and specific misstatements on commitments.

On the quality of APP, the AGSA analysed APP of the DOH. Percentage spending is above 95% but targets achieved were very low, overall the NDOH spent 99 % and achieved 64 % of the target. There were no material findings on Programme 2 which is the NHI Programme. Programme 5 dealing with Hospitals, Tertiary Health Services and Human Resource Development had material findings on usefulness and reliability.

She reported on key audit findings on a key project: Siloam Hospital. The hospital was initially designed to cater for 350 beds but the design had to be redone. The risks identified include the re design costs which could lead to fruitless and wasteful expenditure. There was also the risk of overpayment. A key project tested was Programme 2 on District Health Services. The project comprised Antiretroviral Therapy (ART) related interventions, Condom distribution and high transmission area (HTA interventions) and Prevention of mother to child transmission.

The irregular expenditure identified during the year decreased from R967 million to R 693 million.17 % of the irregular expenditure includes payments made on contracts entered into without the relevant approval. If the non compliance is not investigated and condoned, the payments would continue to be viewed and disclosed as irregular expenditure.

Ms Maud Madondo, IT Senior Manager, AGSA, reported on the findings on IT. The AGSA looked at the systems being used, how secured the systems are, whether there is back up, whether changes are authorised and whether service level agreements monitored. It was discovered that the Directorates have limited IT knowledge. Some of the findings that were identified from the directorates are as follows:
IT Governance framework adopted by the departments did not address key aspects
The business continuity policy approved was inadequate
The SLA for the service providers are not formalized, ICT management did not monitor service providers performance for services rendered
The Firewall standard operating procedures had not been approved
Inadequate network and application monitoring tools to effectively monitor and report on uptime and downtime. Back up in Western Cape system crashed and could not be accessed
The top root causes picked from all the entities were identified to be as follows:
Slow response by management
Instability or vacancies in key positions
Inadequate consequences for poor performance and transgressions
Key officials lack appropriate competencies
On status of key Minister’s commitments, there has been significant progress made to address audit findings raised for the Compensation Commissioner for Occupational Diseases (CCOD). The commitment to submit the financial statements for 2010/11 to 2013/14 has been honoured. The 2014/15 audit is currently in progress. There has also been some movement in dealing with accruals and implementation of Information system.

Ms Sithembile Ngubane, Manager, AGSA, added that overall the sector showed a stagnation in 2017/18 audit outcomes when compared to prior years. Eastern Cape, Gauteng, Free State, Western Cape had unqualified audit opinion whereas KZN, Limpopo, Northern Cape and Mpumalanga had qualified audit outcomes. The audit in North West audit has not been finalised because of the riots that happened in the North West Province. Although the departments were able to correct the material misstatement, issues noted in the prior year annual financial statements have not been fully addressed as similar findings were raised in the current year.

Ms Musisinyani reported on the movement in irregular expenditure and stated that there has been a slight decrease. There was however a slight increase on the unauthorised expenditure. She cautioned that where there is a monopoly and there is discretion without accountability, then there is increase in likelihood of corruption.

Discussion
Ms C Ndaba (ANC) commented on the condom distribution project. She said it is unfortunate that the Committee always receives a report on money spent but it cannot ascertain whether those condoms were received by the beneficiaries. She said the Committee needs to do its own research and measure the impact on distribution of those condoms, whether there is value for money.

Mr P Maesela (ANC) commented that the audit report was an eye opener. The Committee usually demands for answers but does not get the answers. There are no consequences and thus the position continues. He noted that the improvements are slight and there is regression. He said that the recommendations by the AGSA have been taken by the Committee and that the thing to be done is to strengthen consequences.

Ms Wilson sought clarification on the quality of APP versus performance achievements of the NHI. It was reported that the NHI grants were not being spent on NHI, yet out of the 27 targets planned 21 were achieved.

Ms Ndaba asked the AGSA to furnish the Committee with the 2014/15 audit report of the CCOD which is currently in progress. She asked whether the posts which have been vacant for a long time at the NHLS have been advertised. She noted that there is lack of understating of compliance with regulations which is worrying.

Ms Kopane agreed that the story has been the same especially for the NHLS and that the Committee needs to take action since there is no consequence management.

Ms Musisinyani responded on the question of whether there is value for money. She said the AGSA looks at specific projects, what was spent and what was received. The AGSA identifies fruitless and wasteful expenditure. On certain projects it was discovered that there was 100 % expenditure but the targets were not achieved. That is what the AGSA is highlighting. On Programme 2: the NHI Grant, she clarified that the 21 indicators sit at the NDOH and relate to the monitoring of activities at the provincial level. For the other indicators relating to the grant, the AGSA has to go to the provinces to look at the achievement. She confirmed that the AGSA will complete the 2014/15 financial year report for CCOD and present the report to the Committee. On whether the vacancies at NHLS have been advertised, she responded that the CEO and the CFO are still on suspension and the cases are still going on, the position of head of internal audit has been advertised. She clarified that the root causes happened at the entities and not necessarily at the NDOH. She gave the example of the MRC which in its own report admitted that it was not aware of rules relating to local content.

The Chairperson advised that the AGSA should have been more specific on the irregular expenditure in the key projects. She agreed that it was important that the progress on IT was included in the report. She added that there is frustration with the slow pace of the cases at the NHLS. The Committee and was encouraged though that at least a post has been advertised. She thanked the AGSA and noted that the Committee will check on the issues raised with the NDOH.

The meeting was adjourned.