The Standing Committee on Appropriations (SCoA) hosted an induction session with the National Treasury. The Committee was briefed on various structural aspects of public finance, state owned entities and state owned companies.
Highlights included the questioning of the allocation of national revenue to provincial and local government (which it did not seem equitable to members) and discussion of the Road Accident Fund. The National Treasury reported that the Fund had increased its deficit over the past year and that this now stands at R262 billion. The National Treasury expressed concern about this and asked SCoA to assist in ensuring that an existing bill be revived and presented to cabinet for approval. This bill would enable reform of the Fund.
The National Treasury delegation explained the role that Treasury plays in the process of managing and monitoring finances. However, it is Parliament who allocates money to departments and not the National Treasury. The delegation expressed frustration the lack of expertise in departments which resulted in underspending thus delaying projects and reducing service delivery. A difficulty identified by National Treasury was that it has an oversight role, but that it was still a department within a state. The National Treasury also asked SCoA to utilize Parliament’s resources to have broader insights and be more informed of problems within departments.
The National Treasury presented a proposed list of “tools to strengthen oversight” of the SCoA over the Treasury and government departments.
The Committee expressed concerns about lack of accountability where there was underspending or
increasing debts. The Committee also questioned if the National School of Government was effective in equipping public servants with the skills to manage and implement projects successfully.
Proposals by Members included:
- SCoA needed more briefings on debt and how it would be handled;
- SCoA wanted more briefs and information relating to accountability on SOCs.
- The Road Accident Fund bill needed to be pursued.
- The Medium Term Expenditure Committee - an interdepartmental team - could be called to SCoA to explain the budget allocation to provinces.
- National Treasury needs to communicate better
- Government and the National Treasury need to pay attention to skills development in project management, specifically for programs relating to infrastructure, water and sanitation.
The Chairperson opened the meeting and welcomed the delegation from the National Treasury. He said that the Committee was still in the induction phase and that this would continue for the next week. He added that both the Committee and delegation were in the same team, but that they were all playing in different positions. He said that all team members must be strong to have a successful team. He said that when Committee members ask questions, the National Treasury must understand that it’s in the question of oversight and that both groups had the same goal which is to improve the lives of South Africans. He explained that the purpose of the information session was for members to familiarize themselves with the National Treasury Department. He asked that all those present at the meeting introduce themselves before speaking. He then bought to the Committees attention that someone had left their wallet in the men’s bathroom and asked if it belonged to anyone. The wallet did not belong to anyone in the room. He then asked the National Treasury to start their briefing.
Continuation of Members’ Orientation Session with National Treasury
Dr Mampho Modise, Deputy Director General: Public Finance, National Treasury, thanked the Chairperson. She said that the delegation was very excited to spend the day with Members. She added that it was a good opportunity for the Department to explain the how the National Treasury works and the documents they produce. She said that the delegation had decided to come as a team but that in future only certain members would attend. This was because all members of the delegation were high ranking officials and that in future only relevant members would come to present to the Committee to save costs. She explained to Members that the presentation would be done in different sections by different members. After each presentation Members would be able to ask questions. She then asked the National Treasury delegation to introduce themselves and for the first member to start his presentation.
Dr Rendani Randela, Chief Director: Public Finance Division: National Treasury, said that he would take Members through the game of public finance. He explained that the National Treasury has three roles: policy development, budgeting and budget execution. He said that the public finance division is structured in different sectors. He listed them as:
- Education and Related Departments
- Health and Social Development
- Administrative Services
- Justice and Protection Services
- Urban Development and Infrastructure
- Economic Services
He said that all departments have Accounting Officers (AO) in the form of Directors General. He said their roles and responsibilities are outlined in section 38 of the Public Finance Management Act (PFMA) (1999). He added that AOs must not spend money that they don’t have. He explained that the AO must ensure that financial statements are submitted within 2 months after the end of a financial year to the Auditor-General (for auditing) and National Treasury (for consolidation purposes). The AO is also responsible for submitting Annual Reports and that must be no later than 5 months after the end of a financial year and should include financial statements and the Auditor-General’s report. Section 41 of the PFMA obliges AOs to submit information as may be prescribed or required by Treasury or Auditor-General. The task of planning and monitoring used to fall under the Treasury, but now it is the responsibility of the Department of Performance Monitoring and Evaluation (DPME). He said that performance information is important for effective management, including planning, budgeting, implementation, reporting, monitoring and evaluation. He explained that performance by departments is displayed in departmental Annual Reports, Strategic Plans and Annual Performance Plans (APPs) through indicators that are monitored throughout the year. He said that these indicators should be SMART: specific, measurable, achievable, relevant and timely. He said that one of the roles of the sector portfolio committees is to review performance information to ensure that government spending is having the desired impact on the various sectors. In the case of SCoA he explained that Section 4(4) of the PFMA states that the Committee’s powers and functions include considering and reporting on:
- Spending issues;
- Amendments to the Division of Revenue Bill, and all Appropriation Bills (Adjusted, Special or Supplementary);
- Recommendations of the Financial and Fiscal Commission (FFC), including those referred to
- in the Intergovernmental Fiscal Relations Act, 1997 (Act No. 97 of 1997);
- Reports on actual in-year expenditure published by the National Treasury; and
- Any other related matters.
He said that National Treasury’s role was the compilation and publication of a report detailing the spending outcomes in each of the government votes and that this report is submitted to SCoA on a quarterly basis. He then moved on the explain the role of individual sector committees. He said that the role of the sector portfolio committee is to consider bills, deal with departmental budget votes, to oversee the work of the department they are responsible for, and to enquire and make recommendations about any aspect of the department, including its structure, functioning and policy. He ended his presentation by stating that the relationship between National Treasury and SCoA was to ensure service delivery.
The Chairperson asked if Members had any questions. If there were not any questions from Members, he would ask the delegation to continue their presentation. The Chairperson asked what the National Treasury saw the role of the SCoA Committee as being. He said that there was mention of Committees on page 15 in bullet three, and on page 17. He asked how the SCoA Committee differed from the standing committee on finance?
Dr Randela said there are various responsibilities when it comes to spending. He explained that SCoA looks at various types of spending. The other Committees can make recommendations to SCoA based on legislation. SCoA plays an oversight role in performance and looks at specific sectors whereas individual committees only look at their portfolio issues. SCoA in addition focuses on spending matters.
Ms Julia de Bruyn, Chief Director Education and Related Departments, Public Finance Division: National Treasury, used the example of the Department of Basic Education (DBE). This was an issue in the previous parliament. The Department of Basic Education had a schools back log grant of R500 million. They however had only spent R10 million. SCoA’s role in this was to inquire with the DBE for an explanation for the lack of spending. Whereas the education committee wanted to solve the individual problem, SCoA looks at high level spending and performance. Individual Committees are occupied with smaller department specific problems. The individual portfolio committees would act in the interests of their department and ask for more funds, whereas SCoA needs to make sure that every department has money. SCoA is very similar to Treasury in this sense.
The Chairperson thanked the delegation for their comprehensive answers and asked them to continue with their presentation. He also asked the next member of the delegation to introduce herself.
Briefing on the Budget Process
Ms de Bruyn thanked the Chairperson and said that she was in charge of education. She explained that Treasury plays a role in the process and monitoring of finances. However, it is Parliament who allocates money to departments, not the National Treasury. She said that the budget is recommended by the Treasury, but that it is signed into law by Parliament. She added that there were three functions of the budget:
- Spending, taxation and borrowing must support economic objectives;
- Resources must be allocated to political priorities;
- The Budget and budget information must be tools to improve quality and effectiveness of spending.
She said that an example of political priorities is the ruling party’s manifesto and added that a copy of the 2019 Budget was provided to Members for more information. She explained that the Division of Revenue Bill provides for the division of revenue (vat, income tax and custom duties) between and among the three spheres of government on an annual basis. These three spheres are local, provincial and national as indicated on the presentation. The revenue is divided according to a formula which takes into consideration the services each sphere provides. She said that often people ask why local government receives limited funds. This is because local government can raise their own revenue via electricity and water. She explained the functions of each sphere of government as:
- Delivers functions like policing, international cooperation, defense, higher education etc.
- Responsible for policy development & oversight
- Sets priorities through legislation, norms and standards or political statements
- Delivers functions like basic education, health, social development, agriculture etc.
- Generally, funds national priorities
- Delivers functions like water, sanitation, refuse removal
- Has more autonomy on what its resources are spent on
She said that there are various role players in the budget process. The most important are the legislators who make the allocations proposed by Treasury or prescribed by law. She added that National Treasury does not play such an important role that people often think in the budget allocation. She explained the role players in the budget process as:
- Executive (political) which is the cabinet and the Minister's Committee on the Budget (MINCOMBUD)
- Executive (technical) which is the National Treasury, departments and public entities.
She added that the as required by the Constitution and Intergovernmental Fiscal Relations Act that the following three bodies must exist:
- Financial and Fiscal Commission (FFC)
- Budget Council (provincial government) which consists of the nine Members of the Executive Committees (MECs) of Finance.
- Budget Forum (local government)
The working of all the entities was illustrated in the presentation as a diagram. Ms de Bruyn then moved on to discuss the Medium-Term Expenditure Framework (MTEF). She said that it was a budget compiled for three years but appropriated annually. She listed the budget preparation timeline as follows:
- July: Departments submit their estimates of expenditure for the MTEF based on their strategic plans
- July: Performance indicators contained in submissions are aligned to those reflected in strategic and annual performance plans as informed by the National Development Plan (NDP), the State of the Nation Address (SoNA), the Medium Term Strategic Framework (MTSF) and the stated high-level priorities
- Aug & Sept: The Medium Term Expenditure Committee (MTEC) - an interdepartmental committee comprising the DG’s of the National Treasury, Department of Public Service and Administration (DPSA), DPME, and Cooperative Governance and Traditional Affairs (CoGTA) - considers the allocation of funds in respect of each function in line with the priorities of government
- Sept: MTEC makes recommendations to Ministers’ Committee on the Budget
- Oct: Medium Term Budget Policy Statement (MTBPS) tabled – highlighting key government priorities, fiscal framework and division of revenue
- Nov: Allocation letters are sent out, including the provision for earmarking certain amounts or set conditions
- Jan & Feb: Budget documents are prepared
- End Feb: Budget documents are tabled in the Legislature.
She ended her presentation with a discussion on the National Treasury’s technical role in the budget process. She said that it can be divided into three sections: The Budget Office (BO); Inter-governmental Relations (IGR) and Public Finance (PF). The BO Provides the overall Fiscal Framework based on the macroeconomic forecast and technical guidelines for budget submissions. The IGR proposes the Division of Revenue between the 3 spheres of government, and decisions are made at a political level on priorities. She said that PF evaluates budget submissions and ensure that they reflect key government priorities, maintains on-going communication with other central government departments and makes budget recommendations to MTEC. She added that the BO, IDR and PF all make recommendations to the Budget Council and Ministers’ Committee on the Budget (who in turn make recommendations to Cabinet and Extended Cabinet). National Treasury prepares budget documentation and briefs relevant parliamentary committees on the budget documentation tabled.
The Chairperson thanked the delegation and opened the floor for questions from the Committee. He asked that Members keep it brief as much still needed to be discussed.
Mr A Sarupen (DA) referred to the allocation of funds to local government on page 20. He said that for every R100, local government receives R9. He asked if this included local government grants. He said out that there are many departments who claim they cannot spend because they are still busy planning. The slides however indicate that this is not true, as planning occurs well in advance.
Ms M Dikgatle (ANC) thanked the delegation for their presentation. She said asked the National Treasury what challenges they were facing and how the Committee could help?
Ms E Peters (ANC) asked if SCoA’s powers only applied to national or if local and provincial government spending could also be assessed? She then asked how the budget planning unfolds in an election year. During an election year, departments have to submit their planning in July. However, in an election year, this is when the new members start their terms. She asked how planning adapts to the ruling party’s new manifesto? She questioned if this meant that the new members and parties could not deliver on their promises outlined in their manifestos for the first year.
Mr Z Mlenzana (ANC) referred to budget bilateral talks on slide 22. He asked if the Treasury during the bilateral discussions take into consideration the difference between real and nominal figures. He questioned if the Treasury considers the spending capacity of departments? He said that this was important as nominal figures could indicate that the department has funds, but real figures could indicate that they do not have the spending capacity. He asked what informed the share of funds to municipalities as it did not look equitable.
Ms Peters said that the presentation indicated that departments had to submit financial statements within two months of completion to the Auditor General. She asked what the consequences were if a department did not adhere to this? She said that conditional grants were sometimes given to departments in different spheres of government. However sometimes these departments did not have the ability to spend the funds and that this is where underspending comes in. She asked where support could be given to departments so that underspending could be avoided. An example of this was the National Health Insurance Bill. She said that the bill was being tabled but the department could not spend funds because of a lack of expertise.
Mr Musa Zamisa, the SCoA Committee Researcher said that he felt there was room for improvement on how the National Treasury presented their information to SCoA. He explained that all of the information, specifically tables, are sent in a PDF file and that this made the data difficult to extract. He asked that documents be sent in a Microsoft Excel document to make the analysis of data easier.
The Chairperson thanked the Committee for their questions. He said that SCoA did not want to be security guards, but that they wanted to help in transforming the economy. He explained that when considering the budget process, recommendations come to members as a finalized document. He asked Treasury how they felt if the recommendations were to be changed in Parliament, after the Treasury and departments had spent a year prior planning? He asked what the most ideal time was for members to get involved in the budget? He asked of which departments the MTEC consisted and why? He said that debt affected many departments and asked how debt was raised?
Ms E Peters said that according to the presentation, National Treasury does not allocate funds. She said that this was in contradiction with slide 22. She explained that money is sent to each department and that these departments did not decide for themselves how much money they needed.
Ms de Bruyn said she would answer the questions to the best of her capabilities. She said that she could not provide a subjective opinion to the Chairperson about how National Treasury felt when recommendations were changed after spending much time preparing them. She added that it was not her place to answer such a question. On Mr Sarupen’s question she said that the 9% fund allocation to local government included conditional grants. She explained that some departments are more successful than others when it comes to planning which is why the process is started early. The most difficult projects to plan were infrastructure items. She said that the education department was focused on education and not infrastructure. This sometimes led to a lack of expertise when planning. She added that some departments did not want to plan until money was in their account as they did not want to plan with false amounts. She said that National Treasury faced many challenges. Some of these challenges were from the political side within cabinet. Other challenges included communication as Treasury had to deal with many role players. She said that Treasury often finds themselves in the middle when it came to funds allocation. The challenge that Treasury faced the most was that everyone saw their departments as important, but that Treasury had to mitigate to enable that funds be allocated equitably and effectively. She said that there was disagreement within Treasury about funding allocation. She added that if everyone hated Treasury, then the Department knew that they were doing something right because it meant that no favours were given in funding allocation. She explained that planning was very important as it helped with procurement. Treasury could not allocate funds if departments did not have plans. She said that the Department of Basic Education did not spend their allocated school backlog grant. This meant that they should not have received the money. She said that if funds were not going to be given to departments based on bad performance, it would ultimately affect citizens. She said that the Appropriation Bill was for the National Assembly and that each province had its own appropriation bill. KwaZulu-Natal was the largest province and it would therefore receive the most funds as it had the most citizens. The Division of Revenue Bill explains this formula. She said that an election year is the most turbulent year for the National Treasury as it was a balancing act to keep the old and new together. She said that it is less stressful if the ruling party stays in power as it would be a continuation from the previous year. Adjustment appropriations can be issued to address policy changes in the new term, but that this was not an easy process. She said that the bilateral budget negotiations were difficult. She explained that each year enough funds had to be allocated to address all problems facing the department in the upcoming year. National departments did not have financial reserves as all unspent monies had to be returned to the Treasury at the end of the year. Only specific funds could be rolled over. She said that national departments are allowed to allocate funds from conditional grants to provinces. She said that the capacity to spend is determined by the Accounting Officer (AO) for each department. There have been problems wherein AOs state they have the need for funds but don’t truly have the spending capacity. To avoid this, planning is important - specifically in infrastructure projects. She added that government has good ideas, but sometimes fails in planning and implementation.
Mr Mlenzana asked how the National Treasury asked departments for plans before the departments had a budget? He said that planning without a budget impacts on operation.
Ms de Bruyn spoke about the schools backlog grant. She said that in the end it is the AO that takes responsibility for the underspending.
Mr Misaveni Ngobeni, Chief Director (acting) Urban Development and Infrastructure, Public Finance Division: National Treasury said that the budget process is a rolling process in which the process for the next year starts as the current is being approved. He explained that some departments have problems surrounding the capacity to plan for infrastructure programs. Some departments even use implanting agents in which some don’t fare well. Project and cashflow management are a serious problem across many departments. Some departments who underspend lose money because the funds aren’t rolled over. However, the projects still need to be completed, but the funds had been lost. This means that AOs need to delay planning for the projects.
Dr Modise said that Treasury does not get offended by decisions made in Parliament. She said that if Parliament does not agree with budget recommendations then National Treasury accepts these decisions. She said that it is challenging when political parties put forward alternative budget propositions to try and influence Treasury decisions.
The Chairperson asked the delegation how they felt about the changes which were proposed by Parliament. He added that politics should be left to the politicians.
Dr Modise responded to the question on providing data in an Excel format. She said that the presentations sent to members contain only certain information, presented in a manner in which members can understand. She said that the Committee Researcher should rather use the raw data from the National Treasury website and not the departments’ summaries. This would provide another point of view for SCoA to consider.
The Chairperson said that the Committee would break shortly. He said that when departments’ funds are cut, people often blame Treasury, however he now agrees that it is a governmental decision. He said that National Treasury are the worst communicators as they need to be honest about the challenges they face, specifically balancing between departments. He added that he would like Treasury to communicate more with South Africans. He noted that the ability to spend money was lacking in departments. He said that if a SWOT analysis could be done of government, it would find that project management skills are needed. He questioned what the National School of Government was teaching to its students. He said that many projects are stuck and that excuses are always given. He added that projects must not wait for budgets to start planning and that departments needed project managers to implement projects.
Briefing on the Structure of the Budget Documents
The Chairperson reconvened the meeting. He announced that the procedural officer of the Committee has been chosen to play for the Western Cape Provincial Parliament in Japan during the Rugby World Cup. He asked National Treasury to resume their presentation.
Ms Lebogang Madiba, Chief Director: Public Finance, National Treasury, said that her presentation would be on the structure of budget documents. She said February each year, the Minister of Finance tables before Parliament the following documents:
- The Budget Speech
- The Budget Review
- The Estimates of National Expenditure (ENE)
- The Division of Revenue Bill
- The Appropriation Bill
She then discussed what law stipulated as the Money Bills Amendment Procedure. The Money Bills Amendment Procedure and Related Matters Amendment Act, 2018 requires that after the tabling of a national budget:
- Section 8(3) – Committees on finance must within 16 days or as soon as reasonably possible thereafter, submit a report to the National Assembly and the National Council of Provinces on the fiscal framework and revenue proposals
- Section 9(3) – The Division of Revenue Bill (DORA) must be passed within 35 days after the adoption of the fiscal framework by Parliament, or a soon as reasonably possible thereafter
- Section 10(7) – Parliament must pass the Appropriation Bill with or without amendments, within four months after the start of the financial year, namely 31 July 2019.
She continued to list the chapter headings in the Budget Review:
- An Economic Outlook chapter
- A Fiscal Policy chapter, which presents South Africa’s consolidated fiscal framework, and the government’s fiscal stance over the medium term
- A chapter on Revenue Trends and Tax Proposals
- A chapter on Consolidated Spending Plans, which outlines government’s spending projections over the next three financial years by function and economic classification
- A Division of Revenue chapter, which outlines the division nationally raised revenue to national departments, provinces and municipalities through the equitable share and otherwise, as well as spending by provinces and municipalities
- A chapter on Government Debt and Contingent Liabilities
- A chapter of the Financial Position of Public Sector Institutions
She described to Members the Division of Revenue Bill. She said that the bill provides for the equitable division of revenue raised nationally among the national, provincial and local spheres of government. She said that contained in the bill is:
- Equitable share allocations
- Conditional allocations to provinces and municipalities, including for each grant a framework outlining allocation criteria, conditions, etc.
- Matters relating to all allocations
- Duties and powers of municipalities, provincial treasuries and National Treasury
She moved on to discuss the functions of the Appropriation Bill. She said the bill is the legislation that provides for the appropriation of money by Parliament from the National Revenue Fund in terms of section 213 of the Constitution, 1996 and section 26 of the Public Finance Management Act (PFMA), 1999. She added that if a report of SCoA to the House proposes amendments to the main Appropriation Bill, the Committee must, in respect of each amendment:
- Indicate the reason for such proposed amendment
- Demonstrate how the amendment takes into account the broad strategic priorities and allocations of the relevant budget
- Demonstrate the implications of each proposed amendment for an affected vote and the main divisions within that vote
- Demonstrate the impact of any proposed amendment on the balance between transfer payments, capital and recurrent spending in an affected vote
- Set out the impact of any proposed amendment on service delivery
- Set out the manner in which the amendment relates to prevailing departmental strategic plans, reports of the Auditor General, Committee reports adopted by a House, reports in terms of section 32 of the Public Finance Management Act, annual reports and any other information submitted to a House or Committee in terms of the standing rules or on request
When providing a motivation in this context, it would be necessary to link reports from other Committees like SCOPA, Portfolio Committees, Auditor-General, SCoA report, Strategic Plans, Annual performance plans.
The Chairperson asked if the reference 2018/2019 on the presentation was correct.
Dr Modise said that it was.
Ms Madiba continued her presentation by explaining the structure of the bill. She said that allocations are categories in terms of
- Current payments which includes compensation of employees, goods and services and interest and rent on land.
- Transfers and subsidies
- Payments for capital assets
- Payments for financial assets
She said that should Members want more information on specifically and exclusively appropriated amounts and associated documents on the bill, that it was on slides 35 and 36. She concluded her presentation by adding that in October each year, the Minister of Finance tables a “mini-budget” before Parliament, with the documents including:
- The Medium-Term Budget Policy Statement Speech
- The Medium-Term Budget Policy Statement
- The Adjusted Estimates of National Expenditure,
- The Division of Revenue Bill, and
- The Adjusted Appropriation Bill
She thanked Members for their time and asked for questions.
The Chairperson thanked the delegation.
Mr Mlenzana asked at which stage the Appropriation Bill was set aside? Was this only after reserves and debts were reviewed?
Mr Sarupen said that in his experience in provincial government, a big book was usually given to members in which the capital expenditure and life cycle of each project was given. He asked if this was also done at a national level?
Dr Modise said that debt is a direct charge on the revenue fund. Therefore, a department’s debt is paid before the department is paid. le. The debt is a direct charge on the revenue fund.
Mr Mlenzana asked if this information comes to SCoA?
Dr Modise, said that no it doesn’t.
Ms de Bruyn said that in the budget review there are various annexures which provide information on the various projects and their relevant information.
Mr Sarupen said that he did not only refer to major infrastructure projects but asked about amounts for local constituencies.
Ms de Bruyn replied that for each project there is an annexure and that should Mr Sarupen need any specific information, she could send it.
Briefing on the Monitoring of in–year Expenditure
Ms Gillian Wilson, Chief Director Administrative Service: Public Finance Division, National Treasury, said Parliament and its funding (as an institution) falls within her portfolio. She said that the role of National Treasury in Parliament is different compared to other departments. She said that this role focuses on monitoring the expenditure of Parliament and that it has a separate committee for this purpose. She added that the budget for Parliament is finalized at a higher level and that this process differs from normal government departments. She explained that the role of public finance is to monitor and budgets and stage intervention where necessary. She said that it is an interactive process between public finance, departments and entities. She added that the monitoring of financial data is an essential element in managing the performance of any spending agency. She said that the reporting requirements specified in sections 32 and 40(4) of the PFMA, and also in sections 7 to 9 of the Division of Revenue Act (DORA), requires that expenditure and revenue information for all programs be provided each month to the National Treasury. She said that the process was detailed on slide 42. She explained to the Committee that the accounting officer must submit to the relevant treasury and executive authority within 15 days of the end of each month, information on:
- the actual revenue and expenditure for that month, in the format determined by the National Treasury
- projections of anticipated expenditure and revenue for the remainder of the current financial year in the format determined by the national Treasury
- information on conditional grants received and actual spending against them
- information on all transfers
- any material variances and a summary of actions to ensure that the projected expenditure and revenue remain within the budget
She added that an example of such a report is on slide 44. She said that when monitoring reports, the following questions are asked:
- What has happened so far, and why?
- How does it impact on the rest of the year?
- What intervention strategies are required, if any?
She explained that a quarterly report on all activity is presented to SCoA. In addition, she said that Section 32 of the PFMA requires the National Treasury to, within 30 days after the end of each month, publish in the national Government Gazette actual revenues and expenditures in relation to the National Revenue Fund.
The Chairperson opened the floor for questions. No questions were posed. He asked for the next speaker to introduce himself to the Committee.
Briefing on Reporting on Public Entities.
Dr Mark Blecher, Chief Director for Health and Social Development, Public Finance: National Treasury said that prior to issue of the Treasury instruction note, each public entity accounting officer had to establish their own quarterly reporting procedures, and this made it difficult or impossible to compare different sets of submissions. Public entities (PEs) used to report only during the budget time. Although other various systems were in place to source information, such as borrowings, guarantees and capital projects by application lifecycle management (ALM), information was fragmented as there was no formal in-year or quarterly reporting process This left a gap in terms of periodic monitoring through the analysis of these entities performance, and informing budget decisions. On the other hand, South African Reserve Bank and Statistics South Africa had separate systems of data collection, which further fragmented the information. He listed the reporting requirements to the Committee as:
- Entities must within 30 days after the end of each quarter submit their quarterly reports in prescribed templates to the Executive Authorities as well as to the National Treasury
- Accuracy and completeness of the reports must be confirmed by the signature of the Accounting Officer or Accounting Authority of the entity
- Auditor General conducts an audit on the performance information received from PEs
- Entities are also required to submit their budgets to National Treasury during the MTEC and ENE budget processes for oversight and monitoring purposes
- National Treasury reports to the SCoA Committee on a quarterly basis on certain entities
On reporting timelines, he noted that water boards had a different timeline but that the reporting dates were:
- Quarter 1 ending 30 June; Report by 31 July
- Quarter 2 ending 30 September; 31 October
- Quarter 3 ending 31 December; 31 January
- Quarter 4 ending 31 March; 30 April
He said that specific legislation and sections regarding reporting could be found on slide 55. He then moved on to explain the reasons why Public Entities needed to report as:
- State of the public sector’s finances have gained increased attention in recent times
- Focus is as a result of poor financial management, poor audit outcomes, and lack of service delivery
- To hold officials accountable and make decisions, increased scrutiny of information in Financial Statements
- To improve transparency and oversight in relation to financial and non-financial performance of entities
- The idea is to enable institutions to review progress towards the achievement of financial and non-financial performance on a regular basis in a particular financial year
Dr Blecher said that there were many challenges in reporting of data. The first was that Public Finance did not have access to the financial systems of public entities and that public entities did not have budget spending systems. This made tracing objectives and related expenses very difficult. Another challenge was that public entities do not have budget program structures like a department that are approved by the relevant treasury. This made accounting standards difficult as well. He added that public entities also run on different financial systems which makes comparative analysis difficult. He said that to get a clear picture of the state of a public entity the National Treasury examines their financial statements.
The example used was the Road Accident Fund (RAF). RAF’s income is received from the fuel levy. He explained that the first statement showed that total assets were R11 billion compared with R9 billion the previous year. The liabilities however were R273 billion which translated into a R262 billion deficit. He said that this was a R60 billion deterioration from the previous year. He explained that South Africa did not have a well-developed social security system. He said that when the fuel levy had increased, revenue also increased from R36 billion to R42 billion. This looks good on the cashflow statement but when considering the financial performance statement claims, expenditure is far more than revenue, at R96 billion. The RAF’s assets are also being seized. The large deficit is because of the structure of the RAF. He said the RAF is insolvent and that a possible way to help the situation is a new bill which was tabled with cabinet. However, he said that there were indications that the bill might be withdrawn.
Mr Sarupen asked for a list of enterprises that do not report to Parliament. He said that the financial statements were scary and that usually such an entity would file for bankruptcy.
Mr Mlenzana asked who could be held accountable? He said that there is the Minister and the chief operating officer (CEO) of the RAF. He asked if departments just appropriate funds and are then no longer for responsible for what happens?
The Chairperson thanked the delegation for the presentation. Speakers had said that Treasury has no access to the spending records of state-owned companies (SOC). He asked why is that? He said that sometimes spending is not in line with government objectives. He asked how this could be allowed. He agreed with Mr Sarupen that the RAF was insolvent. He said that this report was good to come to SCoA. However, the Department employs many smart and qualified individuals. He asked that Treasury come with solutions. He said that a bill usually goes to cabinet before it goes to Parliament. Should the bill be withdrawn, it would be done by cabinet and that there would be a valid reason for this. He asked Mr Blecher to explain why he thinks the bill would be withdrawn. He agreed that the RAF has always been a problem. He added that it was interesting that the Treasury did not report on Eskom and that it was an elephant in the room. He said that the 2017/2018 debt for Eskom was R350 billion.
Dr Modise added that the recent Eskom debt figure was R500 billion.
The Chairperson expressed his shock. He questioned how within a year the debt could increase to R500 billion and how it could increase by 33% within one year?
Mr Sarupen asked how double dipping has affected the RAF? He explained that some citizens who have private insurance also claim from the RAF and that this was problematic. He added another example on electricity. He said that many whom can afford electricity still receive 100kw for free. He said that those who can pay must and those who cannot must benefit.
Ms Peters said she was responsible for tabling the RAF bill and was disappointed that it might be withdrawn. She agreed with Mr Sarupen on double dipping. She asked the National Treasury to bring to SCoA a presentation of a model SOE in South Africa. She asked this so that it can be used as a learning experience to determine best practice and to compile benchmarks. She said that the social security sector needed reform and the RAF bill would enable this. She added that perhaps someone was taking advantage of the ministerial environment which is why the bill could be withdrawn. She said that South Africa should be careful not to create a welfare state as this was cushioning the impact of poverty. She said that some citizens don’t pay for municipal services and that double dipping happens of various levels. She said that the social security interventions do not encourage unemployed citizens to actively seek jobs. She said that many citizens do not realize how much government supports poverty alleviation and that a basket of goods is offered to citizens. This is why there is an inflow of migrants because of the honey pot citizens have. She said that National Treasury should tell South Africans to count their blessings. She said that National Treasury has received much criticism for supporting Eskom. She added that she wished that citizens realized that blackouts could happen is Eskom is not supported. She said that she wished these blackouts would happen in winter or during the rugby World Cup so that citizens could understand.
Dr Blecher said that the question on accountability was very important. He said that Parliament’s portfolio committees should pay attention to strengthening governance. He said that the South African Social Security Agency (SASSA) did not have a board, which was a problem. He said that with other bodies the CEO reports to the board. He said that in some cases there were also weak boards. He said that focus should be on rebuilding governance and accountability. He explained the RAF bill was focused on restructuring the RAF. He said that currently the RAF does not pay claimants immediately which means it is not meeting the needs of citizens. He said the new bill was focused on acute problems. He added that the bill was strongly opposed by stakeholders benefitting from the existing RAF structures.
The Chairperson asked who these stakeholders were?
Dr Blecher replied it was those stakeholders who were profiting off the current RAF system. He said however that the withdrawal was only a rumour and that he wishes the bill would be revived in Parliament. He said that social security is a difficult issue as it takes up much expenditure but that the proposed bill would be a good solution to some of the problems facing the RAF.
The Chairperson said that he hoped the bill was not being withdrawn and that it passes through cabinet so that it could relieve pressure on the fiscus.
Dr Blecher said that Mr Misaveni Ngobeni is the acting Chief Director in National Treasury responsible for transport. He proposed that Mr Ngobeni write to the Minister to ask that the bill be revived. He added that private insurance is not really double dipping but that it is true that this does take place in certain areas. He said that the point of the model SOE was taken. He added that Eskom would not be discussed that day and that social security reforms were in trouble because of problematic entities. He said that there was also the probability due to budget cuts and fiscal pressure that social grants and pensions would not be increased the following year.
Dr Modise said that the team was limited in reporting on SOEs and that the list for which they were responsible for was on slides six and seven. She said however that there was nothing preventing SCoA to call other entities to report. Treasury however would not be able to report on entities that do not receive funding from the fiscus or appropriations from Parliament. She added that a difficulty working in Treasury is that it has an oversight role, but that it was still a department within a state. She said when cabinet makes a decision, it has to become National Treasury’s view. She said that Treasury would provide feedback on interventions to SCoA. She explained that often accounting officers tell Treasury that their departmental spending does not have anything to do with Treasury but that SCoA could mitigate this problem.
Ms de Bruyn said that when the spending of an accounting officer is a public entity is called into question, the responsible department’s accounting and executive authority is questioned. She added that she had 61 public entities in her portfolio and that compiling a list of all their expenditures would be very difficult. She said that not all entities account for their expenditure in the same way.
The Chairperson said the revival of the RAF bill was important and that SCoA wanted to be updated on the progress. He said that funds should not be appropriated when departments and entities are in trouble. He said that National Treasury should find a way to detect problems in departments in advance. He said that SCoA did not want to be blindsided. He said that just because entities and departments are not in the media, that does not mean that they don’t have problems.
Briefing on tools to strengthen oversight
Mr Misaveni Ngobeni said that he was standing in as acting chief director. He said that this section only had one slide and that this was deliberate. He said the budgeting of priorities in government is not equal. He said the changing of budget recommendations shows Treasury that Members are engaging with the proposals. He listed the following proposals to strengthen oversight by the SCoA:
- Each Committee Member could be assigned 4/5 departments for a detailed review and assessment of their spending (while still reviewing the spending of all departments)
- The DPME could be requested to present the Quarterly Performance Information to the Committee to ensure spending is aligned to outcomes
- The Committee could engage the Chairs of the sector Portfolio Committees to exchange spending and performance information for those sectors where there are spending and outcomes issues
- The Committee could engage with departments on the key spending issues via requesting reports on specific spending matters, invitations to a SCoA meeting, or site visits
- The Committee research staff and the Parliamentary Budget Office could provide the Committee with more detail on specific spending issues using annual reports, strategic plans, annual performance plans, ENE chapters, data supplied by the NT (on request and on the website), evaluations and other relevant research papers
- The Committee could also invite public participation on specific spending issues
Mr X Qayiso (ANC) said the he wanted the recommendations to be practical. He asked how it would work if every member had a researcher and allocated departments.
The Chairperson revisited the problem of project managers. He emphasized that project management across government spheres needed to be invested in. He said that in some infrastructure projects there is a problem with contract management which leads to overspending. He said that these problems needed to be identified as it puts the fiscus at risk. He said that he would like SCoA to write to the Minister of Public Administration to inform him of this risk.
Mr Ngobeni said that he did not imply that each member should have a dedicated team of researchers. He said that, for efficiency, resources needed to be reconsidered and that there is room to improve. He asked if the resources in Parliament were enabling SCoA to play an oversight role? He said that should SCoA invest in proper resources, Members could base their opinions and feedback on facts and different insights. He agreed that project management, specifically within the infrastructure sector was lacking and that proper management and researchers needed to be invested in.
Ms de Bruyn suggested that each member takes oversight resonsibilty for four departments which could become their specialty areas. This would mean that each Member could focus their attention on only four departments instead of focusing on 40 at once.
Ms Wilson said that the National School of Government did have project management but that the impact and efficiency was questionable. She said what works, based on the President’s Inauguration, is that a pool of project managers be generated and that they work across departments.
Dr Modise said that the rest of the slides served as a glossary for members for future reference. She finished the briefing by summarizing
- SCoA needed more briefings on debt and how it would be handled;
- SCoA wanted more briefs and information relating to accountability on SOCs.
- The RAF bill needed to be pursued.
- The inter departmental team could be called to SCoA to explain the budget allocation to provinces.
- National Treasury needs to communicate better
- Government and the National Treasury need to pay attention to skills development in project management, specifically for programs relating to infrastructure, water and sanitation.
The Chairperson said that the biggest market was the public sector. He said that in certain areas investment in the form of training was needed and that that training be dispersed. He added that public servants needed to be knowledgeable and skilled and to do this, investment in human capital was important. He said that the induction was of great value and urged members to keep the presentation for future reference. He thanked National Treasury for their time and hard work. He said that the Committee and National Treasury all form one team with the goal of increasing service delivery. He asked who deals with rating agencies?
Dr Modise said that she dealt with the agencies.
The Chairperson ended the meeting by saying that he and Ms Peters were very impressed with the team. He said that they represent South Africa as they are able to deal with challenging scenarios. He asked that communication please be improved between SCoA and the National Treasury and that they send the information requested. He confirmed with Committee members that the next meeting was to be on the following Tuesday.
The meeting was adjourned.
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