Adjustment Estimates: 1998-1999 and 1999-2000

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Finance Standing Committee

02 November 1999
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Meeting report

PORTFOLIO COMMITTEE ON FINANCE

PORTFOLIO COMMITTEE ON FINANCE
3 November 1999
ADJUSTMENT ESTIMATES: 1998-99 AND 1999-2000

Documents handed out:
Extract from Explanatory Memorandum: Department of Transport, Adjustments Estimate 1999/2000
Extract from Explanatory Memorandum: South African Police Service, Adjustments Estimate 1999/2000
Copies of two letters submitted to the Minister of Justice from the Acting Chief Executive Officer of the Legal Aid Board regarding the financial position of the Legal Aid Board (dated 30 August 1999 and 19 October 1999, respectively).

SUMMARY
The Department of Transport (DOT), the Legal Aid Board and the South African Police Service were invited to explain certain `unforeseen and unavoidable' expenditure included in their adjustment estimates. The additional request made by the DOT was mainly to cover the deficit of the South African Rail Commuter Corporation. The Legal Aid Board find themselves in a position where should the additional request not be granted, the current crisis will not be alleviated. The SAPS' request is mainly for the additional costs incurred during elections.

The Committee adopted the Adjustment Estimates Reports.

MINUTES
As requested by the Committee, the Department of Transport, the Legal Aid Board and the South African Police Service were present. These departments were called in to explain the large amounts requested in the adjustment estimates.

Department of Transport (DOT)
Mr Patel, Director-General of DOT, said that over the last two years the department's budget has been restructured. The three public passenger transport modes (bus, rail and taxi) have been rearranged to create a more strategic frame.
The taxi industry, is said, to be very difficult to deal with and to plan for, which effectively resulted in the roll-over into this year's budget. The bus industry also had a roll-over, which was the result of it being operated on a month-to-month system. This system effectively meant that invoices of the last month of the financial year would only become available on the first month of the next financial period, resulting in the roll-over.

Public passenger transport by rail exists in five metropolitan areas in the country and maintaining this network runs into large expenditure. A number of problems have been experienced in this area, especially to calculate the cost structure of Metro Rail.

Mr Patel went on to explain the Explanatory Memorandum of the adjustment estimates of the DOT. (SEE document attached)

Questions from members:
Dr G Woods (IFP): An amount of R432 million has been allocated to make good the operating cost shortfall of the South African Rail Commuter Corporation (SARCC). If the SARCC has such a big operational cost shortfall and fares are recovered, there must be a problem with the actual fare recovery. Could you explain this?
Response: An effort has been made to improve cost recovery, the problem remains that there is not enough capital funding to maintain stations. No suggestion is made that fare recovery is what SARCC would like it to be, but better fare recovery will assist.

Mr G Grobler (DP): Considering that the SARCC also borrows from the money market, what is the outstanding debt of the SARCC?
Response: At present the SARCC outstanding debt is R1.8 billion, which includes amounts from the money market. We do, however, foresee this situation improving.

Chairperson: The debt of SARCC has been increasing over the years and we really hope that this will be dealt with, as you have undertaken. You made mention that the allocation of R432 million is not for the SARCC, but rather for the department. Could this be explained?
Response: The SARCC estimate of shortfall was higher than R432 million. The R432 million is short of what was originally requested and will not cover all the resources. Another R 100 million will be necessary to cover the deficit. Therefore the department, who will then add another R100 million, needs this R432 million to cover the deficit.

Mr S Leeuw (ANC): Mention have been made of concession contracts. Could you explain what this means?
Response: This is a move towards having a passenger plan where an invitation for tender is put up for any operator in the world to make tenders. This is an experience most metropolitan railways around the world have gone through. In order to set the stage for competitiveness a move must be made towards concession type agreements.

Mr Leeuw (ANC): There is a National Road Agency body with a shortfall of R433 million. Does this feature in this R432 million?
Response: No, it does not feature. There is no functional relationship between the National Road Agency and the SARCC, only that both are overseen by the DOT.

Prof Turok (ANC): Concessional agreements seem to be commercialisation or privatisation. Could you explain this? Also would passengers benefit?
The Chairperson interrupted by reminding Prof Turok that these questions relate to policy and should be discussed in the Portfolio Committee on Transport.

Prof Turok (ANC): Are we going the same route as Britain? It is all good to move towards sufficiency, but in the long run we could run into congestion problems.
Response: We have looked at the British experience and we have drawn some lessons from it. We are not suggesting a rampant decrease of the network, but rather giving global experience to each area.

Prof Turok (ANC): Fare recovery cannot sufficiently be made sufficient without policing, what is your view?
Response: We do not believe that a traffic police should be created, as in the past, but the orders from the Minister are to make safety a priority.

Prof Turok (ANC): You seem to use the poverty alleviation fund for road building?
Response: We have looked at different experiences and drawn from them. We are optimistic that the R100 million will be spent in the direction of road-building projects that will leave behind skills, social access and mobility in the areas in which they are used.

Dr Luyt (FA): Mention was made of an increase in maintenance due to aged rolling stock. Is rolling stock written off over a period of time or do you depreciate some of the rolling stock?
Response: Rolling stock that is on average 25 to 30 years old, has been written off.

Dr Luyt (FA): You submit a budget, but then you go outside the budget and borrow money, which leaves you in a bad position at the end of the financial period. Could you explain this?
Response: The deficit, which the department is trying to cover, is only for operational expenditure, of which the R432 million is of crucial importance. The budget only covers operational expenditure and not capital expenditure. The borrowings made are to cover the capital expenditure, which includes maintenance to rolling stock. Therefore we are moving into an area where no borrowing will be allowed and both operational and capital expenditure will come from the budget.

Legal Aid Board
Present on behalf of the Legal Aid Board (LAB) was the Acting Chief Executive Officer, Mr P Britz, the Chairperson , Judge M Navse, and Head of Finance, Mr H Daniels. The three delegates sketched the various problems their organisation has had to deal with which has resulted in a grave deficit of funds.

The vast amount of legal aid that was granted was one of the causes of the financial problems experienced. Other causes were the major increases in statutory tariffs as well as a tremendous amount of fraud perpetrated by attorneys against the Board in respect of charging for services and time that was in fact not spent on the case. In view of these problems it was emphasised that the Board is in the process of restructuring their systems.

Judge Navse indicated that what they envisaged was that in the future an application for legal aid would have to come with the means test attached to it, a practice which has not been taking place in the past. He continued that legal aid would only be provided if the applicant had satisfied the means test in addition to a test by the magistrate. This latter test would relate to the gravity of the case, the complexity of the case, and also the ability of the accused to fend for himself.

Two aspects of the new scheme were identified. Firstly, they hoped to secure the operation of a Magistrates Commission in terms of policing the appearance of attorneys in criminal courts to certify the correctness of the dates and times when practitioners say that they appeared.

Secondly, they want to move away from the use of private practitioners to a network in the justice system where the Board employs the lawyers providing the service.

Mr Daniels went on to say that the computers they were using were unreliable, and, as a result of inaccurate statistics, attorneys were incorrectly paid, sometimes three or four times over without them returning the money. Further the Board was billed for work that was not done. He added that as part of their restructuring programme they were installing proper systems, as current systems were archaic.

A request was made for an amount of R 107 million to pay off their immediate creditors. If the money was granted to them, they would be able to eradicate this debt within 5 years, but, if the money was not granted, they would still need additional funds for normal administrative expenses. It was added that if the money was not granted to them they would never be able to dig themselves out of the hole in which they found themselves.

Questions and comments by the members
Professor Turok (ANC) addressed a question to State Expenditure. He asked if they had been aware of this problem, and if so, then what processes had they used to monitor the situation.
Their reply was that they were aware of the financial difficulties and that the accounting officer of the Justice Department dealt with this. They stated that their original recommendation was that no further funds would be made available to the Board until they embarked on some kind of restructuring plan.

Professor Turok continued that if the State Expenditure knew, then what was their role in monitoring, specifically in relation to reporting to Cabinet.
At this time the Chairperson interjected to note that the Auditor-General had a long history of giving bad reports and that the problem with the Board was an old one with which she was exasperated. She continued that she was not blaming the present delegation for the problems experienced as it was something which they had inherited and added that Cabinet was aware of the problem.

Professor Turok insisted that State Expenditure did have some kind of tracking role to which they responded that they did and that they would consult with the Department of Justice as a follow-up but that they would only recommend that Parliament provides more funding if a detailed restructuring plan is put in place.

Mr Daniels noted that the Board was taking steps to limit their debts. They were introducing proper systems and were trying to utilise their money fruitfully and efficiently.

Dr Luyt (FA) commented that the Board, considering all its debts, was not in a position to incur new debt.

Dr Woods (IFP) commented that he had noticed a change from the last presentation made by the Board as this time there was the semblance of a plan. New systems were being proposed and there was some basis of calculation. He indicated that this was a big leap forward and that the credibility of this discussion depended upon the Board's plan. Copies of the plan were requested.
To this Mr Daniels replied that he was in the process of completing the business plan and that the plan, which reflects the financial plan for the next three years would be ready at the end of the week.

Mr Nair (ANC) commented that the Board's assurance on restructuring was not a new one. He expressed concern regarding the fraudulent claims made against the Board and wanted to know what was being done in this regard. He also expressed concern regarding the fee structure and wanted to know if the legal profession would support it (he did not think that they would be prepared to adhere to new restrictions and scales). He indicated that the Board required a fundamental change and had to be steered in a new direction.
In response it was stated that at the moment 16 cases of fraud against the Legal Aid Board were being prosecuted. For example, there had been a theft of R 1 million, one half of this amount had already been recovered and the person responsible for the theft had already been convicted. Further, they were referring cases of suspected fraud to the Law Society for investigation. They have also appointed a new investigator who was checking into files to see if lawyers were in court when they said that they were. Thus, they were trying to restructure.

Professor Turok wanted to know what the reaction of the Law Society was to this. The Board's response was that they were very supportive.

In conclusion, the Chairperson thanked them for their presence and noted that she had a sense of `de ja vu' in that she has gone through this with the Board so many times. She referred to Prof. Turok's question as to whom takes responsibility for the problem and noted that the issue made her feel somewhat downhearted. She sympathised with their situation and stated that she understood the scale of the problem that they had.

South African Police Service (SAPS)
Present on behalf of SAPS was Mr Chetty (Deputy National Commissioner), Mr Schutte and Mr Palmer.

According to Mr Schutte there were three main expenditure areas which had resulted in the request for further funds.

Firstly, Polmed, which is considered to be the biggest concern, became almost uncontrollable. As a result, as from 1 January 2000, the Polmed medical scheme will become a privately run medical scheme. In order to curb the expenditure on Polmed, membership contributions as well as limitations on benefits have been introduced.

Secondly, policing the elections, which though not unforeseen, had unfortunately incurred additional expenditure.

Thirdly, the transfer of the Information Technology component to the newly established State Information Technology Agency, resulted in additional expenditure.

Mr Schutte went on to discuss the expenditure in each of the three programmes (SEE document attached). Administration and Detective Services have shown expenditure increases of R317 million and R35 million respectively, whereas Crime Prevention and Reaction Services have shown a decrease of R286 million.

Mr L Chiba (ANC) asked why the expenditure on Polmed, who was granted the tender in 1997, was not accounted for last year when the expenditure was incurred. Mr Schutte confirmed that this expenditure should have impacted on last year's budget, but what had happened was that the amount was not pushed over for one year, therefore the allocation.

According to Mr Schutte an agreement had been reached with the relevant unions regarding the medical scheme contributions and limits.
Mr Chiba (ANC) enquired about the contribution percentages agreed upon and the limits on medical claims. Mr Schutte unfortunately could not give exact percentages, but said it is based on the principle that contributions are made by both employer and employee.

Mr Chiba (ANC) also said that increases in expenditure for the medical scheme also relates to the fact that there are members who have resigned and others who are deceased who are still on the system.
In response Mr Schutte said that reconciliation exercises between the old and new system are being done, but he did not have specifics as to what extent this is happening. The registration of members that would be required from 1 January 2000 will solve this problem, as deductions would have to be made from salaries of members.

Mr Leeuw also highlighted the coincidence of SAPS experiencing a decrease in Crime and Prevention expenses, only for the money to be transferred to other programmes with major increases.

Adoption of Adjustment Estmates Reports
Members were in favour of the Report on Adjustment Estimates 1998-1999 and the Second Report on Adjustments Estimates 1999-2000 and the Reports were adopted.

Appendix 1:

Extract from Explanatory Memorandum: Department of Transport, Adjustments Estimate 1999/2000

4. EXPLANATION OF INCREASES AND (DECREASES) PER PROGRAMME BY MEANS OF STANDARD ITEMS

PROGRAMME 1: ADMINISTRATION

ADMINISTRATIVE EXPENDITURE

i) The former Minister of Transport held a farewell function at the Good Hope Restaurant on 17 March 1999. The invoice was, however, only received on 14 April 1999 and the funds were therefore rolled over from 1998/99 to 1999/00 financial year (+ R33000).

ii) The payment of Regional Establishment Levies on income was neglected since its inception. Levies were paid during 1998/99 for the years 1987/88 to 1997/98. Funds were shifted from Programme 2 to accommodate levies payable for 1998/99 and 1999/2000 (+ R117 000).

iii) Insufficient funds were budgeted for the transformation process and HIV/AIDS programme. Savings were therefore identified and shifted to Professional services (-R35 000).

STORES AND LIVESTOCK

An amount of R85 000 was shifted to Professional services for the transformation process and HIV/AIDS programme.

EQUIPMENT

An amount of R12 000 was shifted to Professional services for the transformation process and HIV/AIDS programme.

PROFESSlONAL AND SPECIAL SERVICES

i) R132 000 was shifted from other standard items within Programme 1 to make sufficient provision for the transformation process and HIV/AIDS programme.

ii) R2,77 million was shifted from Programme 2 to make provision for the International Liaison Function, the transformation process the Department's portion of a salary benchmark study in cooperation with the Agencies, assistance to the Heath Special Investigation Unit and an internal audit plan / strategy

iii) R300 000 each were shifted from Programme 2 and 3 for the Y2K project.

PROGRAMME 2: REGULATION AND SAFETY

ADMINISTRATIVE EXPENDITURE

i) An amount of R117 000 was shifted to Programme 1 to make provision for the unforeseen expenditure in respect of service council levies.

ii) An amount of R2, 77 million was shifted to Programme 1 (see professional services paragraph (ii)).

iii) An amount of R445 000 was shifted to transfer payments to make provision for 14 % VAT on services that are undertaken by SAMSA for the Department.

v) R107 000 was shifted to professional services to make provision for unforeseen expenditure in respect of damages that occurred while maintenance work was done on the Departmental aircraft ZC-CAR.

STORES AND LIVESTOCK

i) Pedestrians make up 40 % of all road traffic fatalities and a need has been identified to produce road traffic educational material to cater for this target group. The State Tender Board awarded the tender to a company called Molefi printers, who unfortunately did not submit their VAT tax certificate which they had to submit before the tender could be approved. As a result the printing work was not completed in the 1998/99 financial year and the funds were rolled over to

1999/00 (R541 000).

ii) During April 1999 two invoices were received for costs relating to the publication of the Ship Registration Act, 1998 (Act no 58 of 1998) and the Shipping Laws Amendment Act, 1998 (Act no 57 of 1998). As the Department received the invoices late for these costs the funds were rolled over from 1998/99 (R79 000).

iii) Insufficient funds were budgeted for training. Savings were identified under this standard item that were shifted to professional services (R10 000).

PROFESSIONAL AND SPECIAL SERVICES

i) R300 000 was shifted to Programme 1 for the Y2K project.

ii) To make provision for the expenditure in respect of maintenance work on the departmental aircraft R107 000 was shifted from administrative expenditure.

iii) Insufficient funds were budgeted for training. R10 000 was shifted from stores for this purpose.

TRANSFER PAYMENTS

i) An amount of R445 000 was shifted from administrative expenditure to make provision for 14 VAT on services that are undertaken by SAMSA for the Department.

ii) Cabinet approved the allocation of R100 million from the Poverty Alleviation Fund for rural roads.

iii) The Treasury Committee approved R25 million towards the completion and construction of the Lubombo Spatial Development Initiative MR 439 road from Hluhluwe to Mozambique.

PROGRAMME 3: POLICY, STRATEGY AND IMPLEMENTATION

EQUIPMENT

R300 000 was shifted to Programme 1 for the Y2K project.

PROFESSIONAL AND SPECIAL SERVICES

i) Several research projects that were started in previous financial years could not be completed in the 1998/99 financial year. A total amount of R1,735 million was therefore rolled over to the 1999/2000 financial year.

ii) The process of appointing consultants for the determination of the business processes and the information needs for the three spheres of government regarding land transport (Tender PS8), was delayed for a year. The consultants were only officially appointed on 10 February 1999. As a result the consultants started their work in the 99/00 financial year and funds were therefore rolled over into the current financial year (R912 000).

It was decided that the preparations for the restructuring of the South African Rail Commuter Corporation (SARCC) should be finalised by the end of the 1999/2000 financial year. Agreement was reached with the SARCC regarding the appointment of rail experts (consultants) to assist in reaching those targets. Due to their financial difficulties they will not be able to fund all the appointments. The Department therefore decided to make available R1 million to the SARCC for this purpose. The funds were therefore shifted to transfer payments.

TRANSFER PAYMENTS

i) An amount of R1 million was shifted from professional services to assist the SARCC in the appointment of consultants (see paragraph (iii) under professional services).

i) Over the past 4 years the subsidy amount allocated to the SARCC has constantly been reduced n real terms, despite the fact that the number of passengers has steadily increased. In the context of rapidly increasing costs resulting from inter alia low levels of capital investments and 'increased insurance and repairs and maintenance cost, the sustainability of commuter rail services are now in immediate jeopardy. Due to this the Treasury Committee has approved the allocation of R432 million to make good the operating cost shortfall of the SARCC.

iii) Government has, through a Trilateral Agreement between Government, Bus Industry and Labour undertaken that savings under bus subsidies be contributed towards an Interim Bus Industry Restructuring Fund (IBIRF). A prerequisite for the transfer of these efficiency savings to the IBIRF is the approval of the deed of registration by the Department of Finance and the Department of Transport. This could not be finalised before the end of the 1998/99 financial year and therefore these funds can only be transferred to the IBIRF in the 1999/2000 financial year. The funds were therefore rolled over (R48 million).

iv) The National Taxi Task Team (NTTT) made certain recommendations for the implementation of the minibus-taxi process. These recommendations identified three broad areas for implementation, namely regulation and control, formalisation and training, and economic assistance. All the Provinces committed themselves to the implementation of the recommendations. Due to unforeseen circumstances, however, the recommendations could not be fully implemented in certain Provinces in the 1998/99 financial year. The unspent funds (R11,161 million) were therefore rolled over to the 1999/2000 financial year.

Appendix 2:

Extract from Explanatory Memorandum: South African Police Service, Adjustments Estimate 1999/2000

4. Detail per programme

Programme 1: Administration: Increase: R317 300 000

This increase can be ascribed to the fact that Medscheme was appointed as the new administrator for the Polmed medical scheme.

The administrator utilises faster payment processes than before which resulted in an adjustment to this monthly cashflow available for this expenditure.

Medscheme pays invoices on a 30 days basis as opposed to the previous 90 days, which resulted in an additional +- R207 million on the annual cashflow for 1999/2000.

There was also an increase in the utilisation of benefits and a tariff adjustment.

In order to curb the expenditure on Polmed, membership contributions as well as limitations on benefits have been introduced as from 1 January 2000.

The following factors contribute to the increase in this programme:

- Additional expenditure relating to the incorporation of the SA Police Service Information Technology component into the newly established SITA.

- A projected deficit on legal costs for State Attorneys, resulting from the Truth and Reconciliation Commission, and

- additional expenditure incurred for the elections.

Programme 2: Crime Prevention and Reaction Services:

Decrease: R286 234 000

Expenditure in programme 2 have been reprioritised in order to finance the projected over- expenditure in programme 1, without impacting negatively on basic policing services.

Programme 3: Detective Services: Increase: R35 001 000

The increase in this programme can be ascribed to the fact that additional funds are being diverted to finance expenditure relating to the Forensic Science Laboratory and the Criminal Record Centre.

These funds are necessary in order to improve the service levels of these components, since the emphasis was shifted to investigations relying more on scientific evidence.

These activities have been identified as priority areas for the 1999/2000 financial year.

Mother contributing factor is the additional expenditure incurred for the elections.

5. Consultant services

6. General

Appendix 3

Copies of two letters submitted to the Minister of Justice from the Acting Chief Executive Officer of the Legal Aid Board regarding the financial position of the Legal Aid Board

First letter:

30 August 1999

To:The Honourable Mr P M Maduna, Minister of Justice

From: Mr P Brits, Acting Chief Executive Officer: Legal Aid Board

Re: FINANCIAL POSITION OF THE LEGAL AID BOARD

Subsequent to Judge Navsa's letter to you dated dated 23 July 1999 I write to you in an attempt to present a clearer picture of the financial position in which the Board finds itself. I hope to clarify what the prospective position is for the remainder of the financial year and how the Board views the establishment of Justice Centres (of which a significant component is Public Defenders).

Mrs P Lubbe, the Minutes Secretary of the Board, sent you a copy of an address by Judge Navsa to the Gauteng Law Council, a copy of which is enclosed for ease of reference. From that address you will no doubt have been able to tell at a glance that the Board's financial position is precarious, particularly in relation to accumulated debt. When Judge Navsa was given five weeks off from the bench to take matters in hand at the Legal Aid Board at the end of May 1999 our first and immediate task was to institute proper procedures and controls given the chaos and maladministration that we found. We knew that it would be a long and arduous task to establish proper administration. In March 1999 when Judge Navsa and Mr D Kuny SC addressed the Standing Committee on Public Accounts the Auditor General's staff were of the view that it would take a minimum of eighteen months to establish proper controls and procedures.

In June and July 1999, as procedures were being established, our payment rate was of necessity slowed down. We were struggling to find files, match documents with files, inculcate in staff a sense of responsibility in spending public money and a substantial measure of on the job training of staff was necessary. Recruitment of staff has been a time consuming exercise. Transformation has however led to an improvement in our general staff competence.

Returning to the financial position I annex hereto marked A schedule setting out the payments made to legal practitioners during 1999. In August 1999 we were able, in substantial compliance with the Auditor-General's prescripts, to increase our payment rate to approximately R17 000 000,00. (anticipated). From the attached payment schedule marked A1 to A3 you will notice that in February 1999 and March 1999 payments were made in aggregate amounts of approximately R22 million and approximately R25 million respectively. These payment levels were achieved without full compliance with Auditor-General and/or Treasury prescripts.

We are also experiencing difficulty in obtaining the full co-operation of legal aid officers to enable us to ensure a complete audit trail at all times. From 1 April 1999 to 29 August 1999 we paid a total of R67 837 998,63 to legal practitioners. To this should be added an amount of of R75 034 890,00. The amount of R75 034 890,00 represents the anticipated operating costs for the period of 1 April 1999 to 31 March 2000 of the Board's head office, Office of the Public Defender, branch offices and Legal Aid Clinics. This includes provision for additional head office staff (R5 293 221,00), accommodation and set up costs for additional head office staff (R9 112 058,00) and SCOPA meetings (R50 000,00). The funds allocated to the Board in respect of the 1999/2000 financial year amount to R233 880 000,00 while an amount of R27 593 390,78 was carried over from the 1998/99 financial year giving a total of R259 473 390,78 available to be spent during the 1999/2000 financial year. The total of the judicare (instructions to private practitioners) expenditure to date and the anticipated operating costs for the financial year leave an amount of R142 872 888,63 to pay for the services of legal practitioners through the judicare system during the remainder of the 1999/2000 financial year.

As you know legal practitioners have been clamouring for monies owed to them over extended periods. If we are to make significant inroads into paying off accumulated debt we have to increase out rate of payment to approximately R40 million per month. The reason therefore is as follows:

  1. The as yet unaudited financial statements in respect of the 1998/99 financial year, of which a copy is enclosed marked B, indicate that accounts on hand but not as yet paid as at 31 March 1999 amounted to R83 558 550,19. .
  2. The average payment to legal practitioners since the beginning of the current financial year amounted to R2716,45 (Including VAT) per account.
  3. Accounts are received by the Board from legal practitioners at the rate of approximately 750 per working day.
  4. There were approximately 24 993 accounts on hand but as yet unpaid at the
  5. commencement of the current financial year.

  6. Between 1 April 1999 and date hereof 24 973 accounts have been paid.
  7. It may consequently be calculated that the current backlog in respect of unpaid accounts amounts to 76 520 accounts. (24 993 accounts plus 102 working days times 750 accounts less 24 973 accounts.)
  8. It is calculated that the Board will receive a further 111 000 accounts during the remainder of the current financial year. (148 working days times 750 accounts.)
  9. In order to pay the backlog of accounts on hand as also the accounts to be received during the remainder of the current financial year the Board will require a total of R509 338 704,00 at an average of R2 716,45 per account. (76 520 accounts plus 111 000 accounts times R2 716,45.)
  10. Since only R118 600 502,15 remains available to pay judicare accounts during the remainder of the current financial year it follows that a further R390 788 201,85 will be required to ensure that the Board is able to meets its financial commitments during the remainder of the current financial year.
  11. If it is considered acceptable for the Board to have a backlog of 3 months accounts as at the end of the financial year the additional amount required may be reduced by R130 389 600,00. (64 working days times 750 accounts times R2 716,45.) This will reduce the additional amount required by the Board to enable it to pay judicare accounts during the remainder of the current financial year to R260 398 601,85.

Should this amount not become available the Board will be compelled to cease issuing new instructions and will be compelled to engage both the legal profession and the government about meeting its past debts. It will also spark a crisis in the administration of justice.

In order to increase the payment of the accounts of legal practitioners from the average 352 per working day achieved during August 1999 to the required average of 1267 per working day the Board will need to significantly increase the rate at which payments to legal practitioners are effected. We are still experiencing some difficulty with out ACCPAC software which inhibits the acceleration of payment. We are working to overcome these problems.

We are also in the process of instituting cost saving measures - eg divorce cases will in future be conducted in the divorce court at a much reduced rate. In all criminal courts we are contemplating reducing the fees dramatically with an all embracing tariff per day rather than permitting separate charges for separate types of legal services - eg appearing in court and perusing documents. In the High court at present a scale of between R1000,00 per day excluding VAT and R1800,00 per day excluding VAT is allowed for appearing in court on trial. We contemplate reducing this to an all embracing amount of R750,00 excluding VAT per day which is still a fairly generous allowance. There will no doubt be great resistance to such a reduction by the profession. However, it is quite clear that the systems and formulas allowed in the past have lead to abuses and that the country simply cannot afford it. Notice will have to be given of intended changes. In the August 1999 edition of De Rebus reform to the legal aid system in England and Wales is discussed at length. It is envisaged that damages claims for personal injuries will be dealt with on a contingency basis. The Board should in the view of Judge Navsa and the writer be moving in a similar direction. Resistance may be expected from the profession. However, the benefits of these cost saving measures are not expected to be reaped during the course of the 1999/2000 financial year although such will enable considerable cost savings to be achieved in future financial years. Already during the current year the head office of the Board is aware of the issue of 124 844 legal aid instructions and it is anticipated that between a total of 220 000 and 240 000 legal aid instructions will be issued during the course of the current year.

The first purpose of this letter is therefore to seek your assistance in obtaining funding from Treasury in September 1999 to meet the visualised shortfall explained above.

Furthermore, since the Government and the Legal Aid Board are committed to moving away from judicare towards the establishment of justice centres we need to seek ways and means of funding the establishment of such justice centres. As you will have noted from documents forwarded to you under cover of my letter of 20 August 1999. The Legal Services Committee of the Board has sanctioned the establishment of five metropolitan justice centres and two rural justice centres as soon as possible. Section 8 of the Legal Aid Act, No. 22 of 1969 as amended provides that:

"The board may, with the consent or in accordance with the general instructions of the Minister acting in consultation with the Minister of Finance, appoint on such condition conditions and at such remuneration as may be approved by the Minister so acting , officers or agents to assist it in the performance of its functions."

One reason that the Board has been unable to proceed with the establishment of justice centres is that posts requested in April 1998 have not as yet been authorised by yourself and the Minister of Finance. The second reason that the establishment of justice centres has not as yet proceeded is that the Board currently lacks the necessary funds to embark on such project. I annex hereto marked C a copy of the budget approved by the Board in respect of the 1999/2000 financial year at its meeting on 12 July 1999 as also provisional budgets in respect of the 2000/2001, 2001/2002 and 2002/2003 financial years. You will note that in respect of the 1999/2000 financial year the Board anticipated a total expenditure of R20 974 615,00 in respect of the establishment of five metropolitan and two rural justice centres. You will also note that the Board envisages:

(a) The establishment of a further ten metropolitan and four rural justice centres in the 2000/2001 financial year.

(b) The establishment of a further twenty metropolitan justice centres and eight rural justice centres in the 2001/2002 financial year.

(c) The establishment of a further 20 metropolitan and 8 rural justice centres in the 2002/2003 financial year.

The figure of R20 974 615,00 represents the minimum anticipated expenditure in respect of the establishment of justice centres during the 1999/2000 financial year. Since the meeting of the Legal Services Committee of the Board which sanctioned the establishment of five metropolitan and two rural justice centres Judge Navsa and the

writer have rethought the original planning and are of the view that both the size of

such justice centres and the tempo at which such are established should be increased considerably. The various pilot projects in the form of the Office of the Public Defender and the various legal aid clinics operated by the Board during the course of the 1990's have indicated that the cost of providing legal services by means of salaried lawyers is approximately half the cost per case of providing such legal services by the judicare method.

The second main aim of this letter is therefor to seek your assistance in obtaining funds from the Treasury during September 1999 to meet the anticipated start up costs of justice centres and to enable such to operate during the remainder of the current financial year. To this purpose we recommend that an additional amount of R30 000 000,00 should be allocated to the Board by the Treasury during the 1999/2000 financial year. The amount has been increased from R20 974 614,00 to R30 000 000,00 in the light of our current thinking concerning the size of justice centres and the tempo at which the Board should move from judicare to the justice centres.

The total amount which the Board requests you to secure from the Treasury additional to its existing budget in respect of the current financial year is consequently R290 398 601.85

The third purpose of this letter is to draw your attention to the contingent liability. You will note from the draft financial statements for the 1998/99 financial year that the contingent liability of the Legal Aid Board as at 31 March 1999 is given as R440 399 174,22. This amount is calculated as per Annexure D hereto. The contingent liabilities represent legal aid instructions which have been issued but in respect of which accounts have not as yet been received. In its early years the Legal Aid Board operated on a basis of a reserve fund which was increased from time to time so as to make provision for the contingent liability. During the 1980's a previous Minister of Finance determined that State funded institutions should no longer hold reserve funds and that expenditure in respect of contingent liabilities should be met from current budget as and when such contingent liabilities became actual liabilities. It is believed that this change of policy was intended to avoid a situation where the State was borrowing money internationally at relatively high interest rates while other monies lay unused in reserve funds. It is not proposed the State should at this stage set aside a reserve fund in respect of the contingent liabilities of the Legal Aid Board. I do however wish to bring to your attention that the consequence of the policy adopted in the 1980's is that substantial expenditure in respect of judicare will continue to be incurred for several years even after the judicare system has in large measure been replaced by justice centres

P J BRITS

Acting Chief Executive Officer

Second letter:

19 October 1999

To:The Honourable Mr P M Maduna, Minister of Justice

From: Mr P Brits, Acting Chief Executive Officer: Legal Aid Board

RE: FINANCIAL POSITION OF THE LEGAL AID BOARD

1. The writer's conversation with Mr Labuschagne on Wednesday, 13 October 1999 refers.

2. In a letter dated 30 August 1999 addressed to the Minister of Justice I, on behalf of the Legal Aid Board, requested the Minister to seek an additional R290 398 601,85 from the Treasury for the Legal Aid Board in respect of the current financial year. This amount was calculated as follows:

2.1 The Board carried over an amount of R27 593 390,78 from the previous financial year. The allocation to the Board in respect of the 1999/2000 financial year was R233 880 000,00. There was consequently R261 473 390,78 available in respect of the 1999/2000 financial year.

2.2 As of 31 March 1999 the Board had on hand 24 993 unpaid and untaxed accounts totalling R83 558 550,19, although this amount might have been reduced on taxation.

2.3 The anticipated operating costs and overheads of the Legal Aid Board in respect of the period 1 April 1999 to 31 March 2000, including the costs of its existing Legal Aid Clinics and the Office of the Public Defender, is R75 034 890,00.

2.4 Between 1 April 1999 and 29 August 1999 the Legal Aid Board paid 24 973 accounts of legal practitioners at a total cost of R67 837 998,63.

2.5 When the overheads and the payments effected in respect of legal practitioners accounts during the period 1 April 1999 to 29 August 1999 are subtracted from the funds on hand at the commencement of the current financial year it is ascertained that there was an amount of R118 600 502,15 available at the commencement on business on 30 August 1999 to pay judicare accounts during the period 30 August 1999 to 31 March 2000.

2.6 Accounts are received by the Legal Aid Board from legal practitioners at the rate of approximately 750 accounts per working day. There are 254 working days in the 1999/2000 financial year but given that very few legal practitioners work between Christmas and New Year the four working days between Tuesday, 28 December 1999 and Friday, 31 December 1999 may be ignored. On the remaining 250 working days making up the financial year it may be calculated that a total of 187 500 accounts will be received from legal practitioners. Given that by 29 August 1999 24 973 accounts had been paid during the financial year while 24 993 accounts had been on hand at the beginning of the financial year it followed that a total of a further 187 520 accounts from legal practitioners would be on hand for payment during the course of the current financial year.

2.7 On 30 August 1999 the writer was advised by the Board's Financial Department that the average payment per legal practitioner's account during the current financial year was R2 716,45. The writer then calculated that a total of R509 388 704,00 would be required by the Legal Aid Board to pay 187 520 accounts.

2.8 Given that R118 600 502,15 remained to pay judicare accounts in respect of the current financial year the writer calculated that a further R390 788 201,85 would be required to pay judicare accounts.

2.9 On the assumption that it would be acceptable for the Board to have a backlog of three months accounts (representing 65 working days) as at the end of the end of the current financial year, the writer reduced the additional amount that would be required to pay judicare accounts during the current financial year to R260 398 601,85.

2.10 In the previous financial year the Board resolved to establish Legal Aid Centres at Cape Town, Mitchell's Plain, Port Elizabeth, Durban, Pietersburg and Ermelo. On the assumption that the necessary authorisation of posts would be forthcoming from the Ministers of Justice and Finance in terms of Section 8 of the Legal Aid Act, No 22 of 1969 as amended pursuant to a work study report submitted to the Minister of Justice during April 1998 the Board budgeted a total of R20 974 615,00 in respect of the establishment running costs of the abovementioned Justice Centres during the 1999/2000 financial years. There were however no funds to meet this anticipated expenditure. In addition, by late August 1999, it was apparent that the Legal Aid Board would need to establish a further Justice Centre at Kimberley and would probably require Public Defenders at other centres in South Africa to attend to criminal appeals, High Court criminal trials and matters in which, for a variety of reasons, private practitioners were unwilling to act, the writer increased the figure of R20 974 615,00 to R30 000 000,00 for Justice Centres for the current financial year.

2.11 It was thus that on 30 August 1999 the Minister of Justice was requested to secure an additional R290 398 601,85 for the Legal Aid Board in respect of the current financial year.

3. During September 1999 Mr H Daniels, an Auditor and Chartered Accountant employed by the Board as a Consultant as Acting Chief Director: Finance, recalculated the additional amount that would be required by the Board for the remainder of the financial year. This took place after discussions with the Department of State Expenditure during the course of which it was made clear that if additional funding were secured for the Board in respect of the current financial year the State would have to borrow such money and consequently the Legal Aid Board would have to ensure that whatever additional funding was given to it was fully utilised during the current financial year. In making his re-calculation Mr Daniels worked not on the basis of what the Legal Aid Board would need by way of additional funding during the current financial year but on the basis of what the Legal Aid Board would be able to spend during the course of the current financial year. This difference in approach was underpinned by certain important assumptions:

3.1 Between December 1997 and June 1998 the Board made use of Visual Basic Software on its computer network to effect the provisioning, taxation, checking and authorisation of the payment of legal practitioners accounts. This has been criticized by the Auditor General, amongst others, firstly because Visual Basic is not a dedicated accounting software package and secondly the Visual Basic database is not 100% reliable. When data was transferred from the Magic software to the Visual Basic software in December 1997 the transfer of the data was not audited. Although the vast majority of the data was successfully transferred some data was not transferred and hence the Visual Basic data base is not sufficiently reliable to serve as the basis of an accounting system. In an attempt to comply with the requirements of the Auditor General the Board upgraded its Accpac computer software and commenced using such for the payment of legal practitioners accounts in June 1999. Although I am informed that the Accpac software complies with the Auditor General's requirements various problems have been experienced with Accpac. The most notable of these is that after the work of any working day has been processed a "day end" procedure is run. While the "day end" procedure is run it is not possible for the staff of the Legal Aid Board to process any further accounts for payment. Because of the volumes handled by the Legal Aid Board the "day end" procedure takes a long time to run. If more than 500 accounts are processed for payment on any one day, the "day end" procedure is likely to run through the night into the following working day. The Board is urgently looking at purchasing more sophisticated accounting software but this is an expensive exercise and it is probable that any such purchase will be preceeded by a detailed needs analysis followed by a tender procedure. It may be possible for the Board to hire more sophisticated accounting software while the needs analysis and tender process is being completed but no finality has as yet been achieved in this regard. The first important assumption made by Mr Daniels was therefore that the Board's ability pay the accounts of practitioners during the remainder of the current financial year would be limited by the limitation of its existing Accpac computer software as follows:

- October 1999 - 9 500 accounts

- November 1999 - 13 000 accounts

- December 1999 - 9 000 accounts

- January 2000 - 10 500 accounts

- February 2000 - 13 500 accounts

- March 2000 - 13 660 accounts

3.2 In considering the average payments that would be likely to be made in respect of the accounts of legal practitioners during the remainder of the financial year Mr Daniels noted that there had been a steady decline in the average payment per account from R3 071,16 in April 1999 to R1 805,25 in September 1999 when he made his calculations. The steady reduction in the quantum of the average payment had been achieved partly as a result of increased controls and vigilance. Mr Daniels consequently made the assumption that it would be possible to keep the average payment below R2 716,45 for the remainder of the financial year and made the following assumption concerning the average payment per account during the last six months of the current financial year:

- October 1999 - R2 400

- November 1999 - R2 500

- December 1999 - R2 500

- January 2000 - R2 600

- February 2000 - R2 500

- March 2000 - R2 500

By late September 1999 Mr Daniels was aware that the Board would be implementing reduced tariffs with effect from 1 November 1999 and, as may be seen above, made some allowance for the effect thereof from February 2000.

3.3 On the basis of the above assumptions Mr Daniels calculated that a total amount of R270 000 000,00 would be spent in respect of legal practitioners accounts during the course of the current financial year, while only R163 000 000,00 in respect of judicare accounts was available in the budget accepted by the Board in respect of the 1999/2000 financial year.

4. Mr Daniels then calculate that it would not be possible for the Board to spent more than a further R107 000 000,00 during the current financial year. I annexed hereto a schedule setting out this calculation.

5. In summary the major difference between the writer's calculations and Mr Daniels' calculations are as follows:

5.1 The writer worked on the basis of what the Board needed to spend. Mr Daniels worked on the basis of what the Board would be able to spent.

5.2 Mr Daniels assumed that the Board would not succeed in solving its accounting computer software problems during the course of the current financial year. Implicit in the writers calculations is an assumption that the Board will be able to solve its accounting computer software problems during the course of the current financial year.

5.3 The writer worked on an average payment per account of R2 716,45. Mr Daniels worked on the reduced averages set out above.

6. It is respectfully suggested that when this issue is debated the Minister should pursue a cautious approach and indicate not that R107 000 000,00 will be sufficient by way of additional funding for the Board in respect of the current financial year but merely that if the Board cannot solve its existing computer software problems during the course of the current financial year it will be unable to spent more than R107 000 000,00 during the course of the current financial year. It is respectfully suggested that the Minister should point out that if the Board is able to solve its accounting computer software problems during the course of the current financial year it will be necessary to make a further approach for additional funding.

P J BRITS

Acting Chief Executive Officer

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