Provincial Treasury 2022/23 budget: discussion & adoption

Meeting report

The Chairperson welcomed Provincial Minister and the Provincial Treasury team. He explained that he was the newly appointed Committee Chairperson and asked the Committee Members to introduce themselves.

Provincial Minister David Maynier congratulated the Chairperson on his appointment.

Mr David Savage, Provincial Treasury Head of Department (HOD) introduced the Provincial Treasury management team.

The Chairperson reminded Members to observe the rules of engagement for virtual meetings and to the ‘raise your hand' function if they had a point of order. He asked Members to ensure their microphones were muted and those who speak to switch their microphone and video camera on.

Provincial Minister’s opening remarks
Provincial Minister David Maynier said it gave him great pleasure to present the Provincial Treasury 2022/23 budget. The budget increased to R321.6 million which is a 6% increase in nominal terms to deliver its key strategic priorities which include efficient infrastructure investment, effective local governance, strategic supply chain management (SCM) and integrated provincial governance. He was confident that the 2022/23 budget would continue to support very important innovations as outlined in his budget speech such as expanding transparency in the provincial procurement disclosure reports, improving regulation in the infrastructure space, deriving value for money for procurement supporting vulnerable municipalities, and preparing for a sustainable fiscal future in the Western Cape.

Provincial Treasury 2022/23 budget
Mr David Savage, Provincial Treasury HOD, said that it was an essential year for the execution of the strategy it had developed for its four strategic priorities: Oversight; Fiscal and Economic Services; Governance and Asset Management to ensure efficient infrastructure investment; effective local governance; strategic SCM; and integrated provincial governance. This is enabled by three strategic levers: talent management, ICT management and digital transformation and knowledge management. The approaches to harnessing the power of Provincial Treasury include building the trust of employees, upskilling for a digital world, and principles of organizational and effective culture. He outlined the Provincial Treasury e-Vision.

Mr Savage noted that risks include regression of provincially owned infrastructure asset base, climate change including energy and water risk, unemployment, COVID-19 virus spread in Western Cape, fiscal pressure, values/behaviours that do not support the desired organizational culture, citizens not feeling safe and cyber security risks. Risk mitigation strategies include: strengthening infrastructure capability, SCM strategy execution, reporting and governance reforms, integrated provincial governance and local government vulnerability management.

Underlying challenges for improved spending performance include poor planning, no quality commitment, and inadequate and fragmented capacity. The approaches to counter this include a clear assignment of responsibilities, keeping managers accountable, consequence management, procurement planning, monitoring, and reporting (e-Procurement Toolkit), enhanced management of transfer payments and a compensation of employees (COE) Committee.

The budget for the Medium Term Expenditure Framework (MTEF) was outlined and the amounts for each programme. The sustainable resource management program had the highest budget of R144 million. The compensation of employees budget was R206.7 million. The COE vacancy rate was 18% as of 11 March 2022.

Under goods and services, Treasury's focus will be on digital transformation and implementing its ICT e-vision such as e-learning and e-Procurement solution; SCM reform and procurement planning; policy research and expenditure reviews; improving infrastructure spending performance.

Under transfers and subsidies, the Vote had three grants in 2021/22 but two have been combined and redesigned. The Financial Management Support Grant and Financial Management Capacity Building Grant have been consolidated and renamed the Financial Management Capability Grant. (FMCG) that will continue to provide support to municipalities and attain the set objectives over the 2022 MTEF. That grant and the Municipal Financial Recovery Services Grant (MFRSG) will be allocated in the Adjusted Estimates and be based on the outcomes and recommendations of the municipal engagements as well as the outcome of their Annual Financial Statements.

See the presentation for further details.

Discussion
The Chairperson thanked the department for the presentation. He asked Members to focus on pages 81–95 of the Budget.

Mr R Mackenzie (DA) appreciated the spending performance and consequence management interventions implemented by the department. He referred to the legacy system that Provincial Treasury was working on with National Treasury and asked if it had set a timeline for the Integrated Financial Management System. Were there timelines for the infrastructure management reporting system and when would it begin supplying the Standing Committees with quarterly reports on infrastructure spending. He wanted clarity on the composition of the 18% vacancy rate.

He referred to page 90 of the Provincial Treasury budget under the Local Government Finance (LGF) Groups and Municipal Finance Act (MFMA) coordination and asked what training interventions it was conducting and if it was in conjunction with local government to ensure monitoring of municipal budgets. He asked how Provincial Treasury was ensuring that municipalities reported to them as budget performance is reported quarterly.

Considering the recent killings of people investigating municipalities, he asked what proactive security measures Provincial Treasury has put in place to ensure that its officials are not targeted. He acknowledged the SCM circulars and asked what practical measures it had put in place to ensure the impact on the Western Cape government on page 87. Lastly, he asked for its comments on the Beaufort West municipality.

Mr D America (DA) considered the presentation to be highly insightful in terms of its activities and wanted to understand the complexities encountered within the department. He referred to Table 9.2 which looked at the Local Government Budget Office (LGBO) and the LGF Groups 1 and 2 and asked the difference between the two classifications and the different functions of the two offices.

Transfers to the Department of Transport and Public Works (DTPW) were for infrastructure development on behalf of Provincial Treasury. On funding for infrastructure, he asked what kind of infrastructure Provincial Treasury involved itself with. He referred to Table 9.3 under SCM and asked if the budget allocation was based on the expectation of new legislation that may include a 50% increase in SCM training over the MTEF outer years and if these SCM processes were within the municipalities. Table 9.4.1 indicated under Household expenditure, leave gratuities were paid out to former employees and asked if the expenditure was recorded for that particular year and if nothing was recorded in the outer years for that expenditure. The Committee did not have a sense that the liability would be in the outer years. Table 10.2 recorded training expenditure and he asked about the number of days spent on training and the costs.

Mr America referred to the Beaufort West municipality intervention and was aware that a similar financial recovery plan was instituted in the Kannaland municipality. Both municipalities have faced financial difficulties, governing challenges and a resistant culture to good governance. He emphasized a culture of good governance being instilled within the organisation of the municipalities. He asked how different the intervention in the Beaufort West municipality would be from the intervention in the Kannaland municipality.

It was heartening to be informed about the serious introspection on under expenditure within Provincial Treasury. This kind of introspection was not observed in other departments and he wished that they could initiate and spread this culture, given the limited fiscal space and depressed financial environment in which Provincial Treasury operates. It was best to limit under expenditure to fulfil the service delivery mandate.

Ms N Nkondlo (ANC) asked for the budget implications for the reconfiguration of departments through the merging of the Department of Human Settlements (DHS) and parts of the Department of Transport and Public Works (DTPW) into the new Department of Infrastructure as announced by the Western Cape Premier. She asked what efforts Provincial Treasury was putting towards the reforms the HOD noted which could be considered in the 2022/23 budget adjustment. She asked for Provincial Treasury’s budget performance and which instruments such as research and reports it adopted to ensure budget spending has a good overall impact on poverty and inequality.

She said that page 82 covered the demands in service delivery and the well-being of citizens which is important given the Covid-19 pandemic and economic and political challenges. There were budget cuts last year to mitigate the Covid-19 impact on the economy and sustainability strategies and service delivery models were explored. From a budgetary point of view, she asked what these strategies and models were and if they considered inequality and the need for redistribution to tackle high-level challenges experienced by households in the Western Cape.

She welcomed the infrastructure performance reporting. She requested that these reports be shared with the Committee to inform itself on infrastructure performance reporting and to give input as the legislative arm of the province. She noted that the DTPW HOD was not aware that Provincial Treasury had a new reporting instrument.

She could see risks at local government level subsequent to the local government elections but noted that it was not presented as a risk in the presentation. She agreed with the difficulties in the Kannaland and Beaufort West municipalities and she would attend the afternoon session of the Local Government Standing Committee to see if there was any forecast about political instability in municipalities and its implications both for administration and budget stability. Our democracy allows for coalition governments and this is seen now more than before and there are implications for administration and budget stability as was seen before in the Tshwane municipality. It was important that this matter was raised as a risk as there is a lot of political outsmarting. Thus Provincial Treasury must ensure that mitigating strategies are put in place.

She asked what kind of employment equity (EE) interventions would be answered through the 35 vacancies and what the current EE status of the Provincial Treasury was. ICT solutions were not necessarily labour-intensive and she asked the extent to which Provincial Treasury was driven by its e-Vision. She asked if there would be COE budget cuts.

She appreciated Provincial Treasury’s spending patterns. She asked if they were doing any spending for fiscal strategies and discipline in local government. She asked how it was ensuring municipal grant spending as the Financial Fiscal Commission, Budget Office and South African Local Government Association (SALGA) drew attention to the extent to which municipalities underspend on grants and grants targeted at poor communities in need of support by government.

Provincial Treasury response
Mr David Savage, HOD, replied about the timelines, saying some of the spending performance measures were proactive and would focus on consequence at the end of 2021/22. In the new financial year, initiatives would occur such as expanding transparency in infrastructure reporting.

On infrastructure reporting performance, Provincial Treasury has an active internal reporting framework that produces quarterly reports on infrastructure and looks both at planning and expenditure performance, as well as outputs and challenges. It is based on a shared model which is geolocated with the infrastructure reporting module in National Treasury. It provides both financial and non-financial modelling and can be organised on a sector basis. Behind the scenes, Provincial Treasury has improved its capability to not just data dump but to provide usable valuable reports. These reports would be shared at the end of the first quarter of 2022/23, hence the commitment by the provincial minister.

Provincial Treasury was alert to the potential security risks for its officials. It assesses on an ongoing basis when staff are on-site visiting municipalities. For safety and non-disclosure purposes, he would not discuss the specific response measures that Provincial Treasury has implemented on this public platform.

On the timeline for infrastructure reform, the DTPW HOD had already indicated that the intention is for operationalisation by 2022/23. Changes introduced in the adjustment estimates in 2022/23 would be undertaken if appropriate. The primary implications from a budget perspective would be the establishment of the programme structures for the new budget votes. This budget would then earmark the funding that is likely to go to the new departments and the new votes so there are no radical shifts made in advance which may create a residual liability for the provincial revenue fund. This was the standard measure Provincial Treasury undertook and has done which predominantly relates to the establishment of the Violence Prevention Unit in Provincial Department of Health (DoH) and in the separation of the Mobility and Infrastructure functions in the DTPW. This process was managed centrally by the Department of the Premier and it would be able to give more details on the specific timeline in this financial year which is the subject of considerable ongoing work.

He apologised to Ms Nkondlo that he made an error in the presentation as local government instability was captured in the presentation and is central to Provincial Treasury’s understanding of the risk environment in local government presently. The budget has responded to some of the immediate risks of instability and in the provincial minister’s budget speech he had announced specific allocations for forensics and legal services as well as capacity support for municipalities through the transition.

The HOD agreed that Provincial Treasury should have a focus on vulnerability management that does not just deal with municipalities in financial distress but also those detected in the early warning systems of being likely at risk. There was an integrated committee across Provincial Treasury, Departments of Local Government (DLG) and the Premier, and legal services that meet on a regular basis to review the risk profile of individual municipalities to resolve governance and financial challenges before it becomes a crisis. In the political environment as coalitions settle down, Provincial Treasury uses a simple rubric that it guards the rails of the system and therefore, as stipulated in Chapter 13 of the MFMA ‘without fear or favour’ at a technical level because as Provincial Treasury has stated before in the Committee, it will execute its mandate.

Mr Isac Smith, Chief Director: Asset Management, replied that the timeline for the Integrated Financial Management System (IFMS) process was driven by National Treasury which could postpone the implementation of some of the models, and therefore Provincial Treasury is not entirely in control of this. Provincial Treasury has improved the legacy system by making data easily available to their institutions and having sessions with National Treasury to get all the data within the data store.

The increase in budget allocation for SCM was to support technology in the supply chain and value for money. R1.5 million was identified for research and the second-highest expenditure was to buy capacity to assist in analysing the procurement spend across all departments. The R3 million is for the reform areas such as SCM. The idea is to create capacity within Provincial Treasury but until such time, it will be buying in resources.

From 1 April, the e-procurement drive will be in operation and will only cater for purchases up to R1 million. Provincial Treasury is busy building capacity to deal with all procurement and has thus created a procurement centre to support suppliers. Provincial Treasury is looking at expanding the provincial-driven initiatives to the municipal environment in the new financial year.

Ms Nadia Ebrahim, Director: Provincial Government SCM, replied that the Preferential Procurement Policy Framework Act (PPPFA) regulations of 2017 had been declared invalid in its totality. The judgment created gaps in how to dispense procurement requirements. The potential for irregular expenditure emerged with huge risks for service delivery as well as litigation. There was lack of clarity on the expiry date of the suspension of the court order of invalidity. Provincial Treasury liaised with National Treasury about putting in corrective legislative measures. National Treasury filed a court application on 4 March to seek clarity from the Constitutional Court if the suspension of the order of invalidity has expired or continues. It addressed the gaps on the value thresholds required in terms of the 80-20 and 90-10 point system and evidence to claim preference points in procurement.

In the interim, National Treasury has issued a very succinct set of regulations and two sets of advisory notes suspending all procurement after the judgment of 16 February. Provincial Treasury would ask the provincial cabinet to endorse how to proceed and for direction about local content. Provincial Treasury asked for local content to be suspended until there is clarity on how it is to be implemented within the procurement process to avoid further riskier challenges.

Provincial Treasury in the interim has looked at procurement planning and is in the process of making a collective submission by Western Cape provincial departments to National Treasury for exemption of specific commodities especially if the court does not grant the suspension of invalidity. There are 30 Western Cape municipal councils to consider on how to look at procurement.

Mr Steven Kenyon, Chief Director: Local Government Public Finance, replied that councillor training was led by SALGA; however, Provincial Treasury actively participated in this process. All new councils across the Western Cape have been through a five-day induction programme and returning councillors are required to attend one of those five days. A full-day training on finance matters and supply chain was led by Provincial Treasury officials supported by the Auditor General's Office. Provincial Treasury is currently doing portfolio-specific councillor training coordinated by SALGA whilst Provincial Treasury colleagues participate in a two-day impact training session. There is an expected finance portfolio committee training to deal with budgeting and so forth.

On financial reporting requirements, municipal officials compile the reports and its accounting officer then signs off and submits them to the Provincial Treasury. Provincial Treasury training is focused on enabling the council to use the same reports to interpret and use in their oversight role; distinction between the roles of the municipal official, accounting officer, and the politician/council oversight; and the administrative/ political interface in managing council business.

The financial recovery plan for the Beaufort West municipality intervention was formally approved on 7 March and submitted to the municipality and to the Speaker of the Provincial Parliament. Provincial Treasury and the DLG are scheduled to give a formal briefing to the Beaufort West municipal council on 23 March for support, reporting and implementation of the financial recovery plan. The difference between the two financial recovery plans is that the Kannaland municipality plan was ended by court order in October 2021 as the court found it to have been incorrectly prepared, with procedural irregularities; and that the process was led by the province rather than by National Treasury's Municipal Finance Recovery Services (MFRS) Unit. Provincial Treasury had then asked the National Treasury unit to prepare an amended financial recovery plan for Kannaland municipality which was completed and approved, and the court has since ended the intervention. With the Kannaland intervention, Provincial Treasury did not implement the amended financial recovery plan prepared by MFRS, but with the Beaufort West municipality intervention, this has been implemented. The Beaufort West municipality intervention financial recovery plan is a three-stage intervention with a rescue phase, recovery phase, and stabilization phase; and has four pillars: financial management, institutional management, governance and service delivery. Provincial Treasury, DLG and the Beaufort West municipality would be happy to give a more comprehensive briefing on this intervention plan.

Ms Annamarie Smit, Provincial Treasury CFO, replied that the vacancy rate was 18% and there were 336 approved posts. These included funded and unfunded posts. Provincial Treasury funded 35 posts which made up 10% and 28 posts made up the remaining 8% which it was unable to fund due to budget allocation and COE upper limits.

On the leave gratuities payable, Provincial Treasury pays on the cash basis of accounting and therefore the expenditure is only recognised when it is paid. However, the annual financial statements do make provision for contingent liabilities on the specific leave gratuities. There is no provision in the outer years but there is a provision in the 2022/23 budget for transfers to households as calculations have been made based on leave due.

Ms Naadia Ismail, Director: Strategic and Operational Management Support, replied that the training reflected in Table 10.2 was inclusive of training with financial and without financial implications. In the event of a COVID-19 lockdown, staff members would still be able to train and attend free online courses ranging from one to ten days or more. On employment outreach and e-target, Provincial Treasury takes advantage of the Human Resource workforce plan and the talent management strategy to innovatively attract candidates. Provincial Treasury would have to be more proactive and integrated on the short-term and long-term in leveraging its full capabilities to enhance attractiveness. The recruitment and selection in advertising, shortlisting and appointments serve before the Employment Equity manager who monitors these for the EE plan targets. Provincial Treasury was thinking creatively on how to leverage an appropriate culture from direct discussions on diversity, anti-racism, anti-sexism and other social dynamics, as there have been internal discussions on transformation and diversity.

On COE cuts, Mr Savage replied that the cuts would not result from the Provincial Treasury digital strategy as the digital strategy allowed Provincial Treasury to reposition the staff to higher-order analytical functions. Currently, Provincial Treasury manually validates and aggregates data sets, and it is time-consuming. The digital transformation strategy can mostly automate this and thus allow workers to analyse data and find the meaning in the data to help inform policy decisions.

For the infrastructure reporting framework, Dr Roy Havemann, Deputy Director-General: Fiscal and Economic Services, replied that there were two systems Provincial Treasury used to monitor expenditure on infrastructure. One is the monitoring system of normal monthly reports and two is the Infrastructure Reporting Model (IRM) system which is available online. Data was now available hourly as the system automatically updates. In the IRM system, infrastructure data is mapped with GIS coding. The GIS system enables Provincial Treasury to know where the projects are located and analyse the extent to which infrastructure is delivered in a coordinated way with municipalities and national government. He motivated that GIS mapping for infrastructure would align infrastructure spending at a spatial level as Provincial Treasury could map out deprived areas of vulnerable groups to ensure spending equity for the social goals of reducing poverty and inequality.

There are different local government teams:
- Local Government Budget Office (LGBO) team is the analytical policy team that does analytical work, on infrastructure spending for instance.
- Local Government Public Finance (LGPF) group 1 and 2 do the analysis of municipal performance which allows Provincial Treasury to develop municipal vulnerability awareness and conduct monthly monitoring of municipal finances. This was very important for the various mutual local government oversight functions Provincial Treasury had.

Funding for earmarked infrastructure spending came from National Treasury allocations to the provincial treasuries to help build capability in infrastructure monitoring and performance. Provincial Treasury uses this money to support increasing the size of the small infrastructure team which is one of its top four priorities. The infrastructure team has worked tirelessly to deliver reports that add traditional capacity and bring in new systems to streamline their approach.

The HOD replied that grant spending is the transfers to municipalities across the Western Cape government. Provincial Treasury had reviewed the provincial grants to local government which provisionally recommended the consolidation and expansion of grant programmes to focus more on intermediate outcomes and ensure alignment to the broader strategy. This was an ongoing process. Provincial Treasury would consolidate two of the Provincial Treasury grants as an interim step in 2022/23. There were ongoing discussions both with municipalities and departments through the Joint District and Metro Approach (JDMA) process. Grant spending was a function that enabled Provincial Treasury to know what the grants intended to achieve which is where local government grant review assists to move up the value chain towards more intermediate outcomes.

The bulk of municipal grant underspending was in the infrastructure space and Provincial Treasury does not make a large series of infrastructure-based transfers to municipalities. Those are predominantly from national programmes such as the Municipal Infrastructure Grant.

Provincial Treasury had capacity programmes, particularly in the DLG to help municipalities build their own spending capacity and to execute expenditure in a disciplined way. However, Provincial Treasury has observed a variation between the average spending performance of the municipality and the spending performance on grants which is a problem in the design of the grant programme and leads to lower-than-average spending performance. Municipalities were operating their own control system which is audited alongside an additional set of control systems that may be inefficient and ineffective, and these are the bureaucratic obstacles.

Provincial Treasury has a role in infrastructure strategy for the province because of the financing of infrastructure investment. There was a broader budget process on providing predictability and certainty as well as ongoing efforts to leverage alternative sources of financing for infrastructure. Before financing infrastructure, there should be well-prepared projects and assurance of the stage/gate system for project preparation in the Infrastructure Delivery Management System (IDMS). The key intention behind the project preparation facility was to be reporting regulations over a cycle in which Provincial Treasury wants to expand its human resource capabilities to effectively perform all their duties in an integrated way to progressively expand infrastructure investment in the province by the Western Cape government and municipalities.

The timeline on SCM reform and the expansion of the procurement disclosure report would take time because it often requires an investment in new systems and is very labour-intensive. The report will be done progressively through 2022/23.

Mr Savage reiterated that there was an existing reporting mechanism for infrastructure spending performance. These reports were shared with the Budget Committee and Provincial Treasury intends on sharing similar reports with the Standing Committee on Education, Health, and Transport in hopes that it assists them in their oversight responsibilities. Provincial Treasury took its spending performance very seriously and thanked the Members for commending this.

Discussion on pages 96-125 of the Budget
The Chairperson asked if there was an update on pilot project for using AI and machine-based learning for procurement and budgeting in the Western Cape government.

Ms Nkondlo asked if Provincial Treasury had begun with the service delivery model and sustainability strategies in response to the budget cuts, given the uncertainty of funds due to the global challenges we currently face.

She acknowledged the GIS mapping system and asked if there is a deliberate effort to extract and analyse the available data to measure if the social goals are being achieved.

On infrastructure performance reporting, she wanted a balanced view of the procurement challenges Provincial Treasury was facing on local content. Is there value in building local and domestic manufacturing capacity to enable the country’s global competitiveness in the economy instead of depending on international markets?

She referred to the 9% budget cut in sub-programme 3 on page 103 and asked why this occurred as it is an essential programme charged with provincial budget policy assessment reports, whilst the Local Government Public Finance groups received a budget allocation increase of almost 36%.

Ms Nkondlo noted a budget of nearly R33 million for consultant and professional services on page 114 and asked if this is because Provincial Treasury did not have this internal capacity and if so, how would it build such capacity so that it will reduce this spending. The AG had raised concern about the usage of consultants across provinces and departments plus the lack of capability to oversee and monitor the quality of the consulting services rendered.

Mr Mackenzie asked if there was training for suppliers on the new system seeing that e-procurement is going live on 1 April 2022. He asked if the new system would run concurrently with the old system and if there was a backup in case of glitches.

He referred to the expenditure trend analysis on page 107 and asked if there was going to be system training or people training. The budget increased by R3.5 million to support identifying and formulating supplier reform including the procurement of a data centre. He asked if Provincial Treasury was buying a new system and what this system is.

He noted page 114 presented a budget decrease but a 122% increase on leave pay-out. What did it intend on doing in 2022/23? There was an increase of R3 million for communications and he asked what Provincial Treasury would do differently this financial year. He saw legal costs of R400 000 and asked why this occurred. He asked if the R5.4 million for audit fees covered only Provincial Treasury or other departments as well.

He agreed that he did not want the exact details of safety measures but rather to get assurance that Provincial Treasury was aware of the emerging violence and actively seeking solutions.

Department response
The HOD replied that Provincial Treasury would welcome input and feedback on the nature of the infrastructure performance reports for a process of continuous improvement.

On the service delivery model, Provincial Treasury has a business process re-engineering project that is ongoing to ensure that the service delivery model is adjusted to help cope with reductions in the resources are available over the MTEF. Digital transformation is one way in which Provincial Treasury generates increased effectiveness and impact.

On local content, the approach was adopted through the PPPFA Act which adopted pre-qualification as a requirement, in other words, one had to have 100% local content. This pre-qualification could restrict even a South African supplier or small business that wanted to compete. For instance, a bag of cement that is not 100% local content. He asked how it was for certain that 100% local content for a cement bag was going to indeed deal with the competitiveness of the South African cement industry. He challenged the pre-qualification and asked how one would know that the problem is with external imports of cement as opposed to structural constraints such as energy supply problems and so forth. This requirement could be creating an industry that only benefits some players and not the public. Provincial Treasury was committed to the healthy growth and development of the South African economy and for its benefits to be broad-based. Thus, one needs to take a very pragmatic, practical, and evidence-led approach towards local content and local participation in the supply chains.

The Western Cape Province has adopted evidence-led mechanisms to enable Provincial Treasury to conduct empowerment assessments in the commodities and look at measures that make it easy (for especially small businesses) to compete for work in the supply chains. Provincial Treasury believes that it is possible to balance the concerns over price with local content and local participation competition.

Mr Aziz Hardien, Chief Director: Financial Governance and Accounting, was happy to report that Provincial Treasury had launched a programme within the municipalities to assist with auditing findings which have since been running. Systemic challenges started with procurement although Provincial Treasury followed a good process investing in the system.

The Western Cape had about 450 different ICT active projects and each time a new project was introduced there were governance processes to ensure no duplication in the system. AI presents a space for innovation; however, departments must prevent any type of unwanted expenditure and always obey the rule of the law.

Provincial Treasury has newly implemented a ticket management service provider system that enables municipalities, departments and public entities to predict the type of audit outcomes once all tickets have been received from the clients. Based on this prediction, Provincial Treasury could decide where training was required and prepare custom training plans for the officials on the financial statements. As such, AI has allowed Provincial Treasury to audit financial statements that support the budget processes and many other possibilities.

Provincial Treasury was mindful of the training for governance processes and change management processes in AI/machine learning. National Treasury was pleased with the AI system and has invited Provincial Treasury to explain to a national forum the successes of the system and has now implemented the system for the municipalities. The AI system generates reports and transfers them to a National Treasury system. Provincial Treasury was finding ways to simplify work for staff members with the AI system by enabling them to do the analysis. Provincial Treasury could predict when a municipality will run into difficulty or a set of financial statements have a negative outcome.

In response to the service delivery impact of budget cuts, Dr Havemann replied that the Western Cape introduced a fiscal transition support facility in the last budget to mitigate the impact of budget cuts on service delivery by providing a pool of funds that the votes could draw on to improve their service delivery model. A successful project last year was the delivery of medicine to people using a variety of different technologies rather than having people come into the hospitals. This model saved money and significantly improved service delivery for the DoH.

There were big spatial differences between richer and poorer areas in the province and achieving improved service delivery would be important. The Western Cape Education Department (WCED) had done a good job in predicting population growth in different areas and then built resources to match these areas by adding new classrooms and moving teachers about. Departments are not always able to make predictions and that is why Provincial Treasury must conduct deeper research into understanding all the different factors, where the population growth is, and which services are needed.

Provincial Treasury had a programme where the municipalities gave input on their needs. There have been engagements at municipal level to understand where the service delivery pressures are and then use spatial research to have a better understanding. This linked to the Fiscal Futures project to understand service delivery pressures not only for this year but for the next five to ten years as different types of population growth have different service delivery implications.

Provincial Treasury was looking at more creative ways to restore the infrastructure team as some people have retired. There would be reduced COE spending whilst the vacancies are being filled.

There has been an increased demand for resources in Local Government Public Finance to work on vulnerable municipalities. On the budget shift, some money was moved from the Local Government Budget Office to fiscal policy. Provincial Treasury had decided to concentrate more on the fiscal policy team resources, the research team, and move staff from the budget office to fiscal policy because the fiscal policy team needed additional staff whilst the budget office was operating at near full capacity. The transfers would only be done in the adjustments budget.

Mr Smith replied that the R3.5 million was for strategic sourcing capacity that Provincial Treasury never had within the SCM unit and it wants to build this capacity over the medium and long term. Provincial Treasury wanted to expand on the data accumulated to identify possible areas of economies of scale with perhaps larger contracts and thus the funds to build on this.

Procurement strategies were important and depending on the strategy employed it could lead to better contracting and better prices or to increased costs if a better procurement strategy is not put in place. These are the areas Provincial Treasury will be focusing on but as they wait for IFMS finalisation, it is a part of value for money. The province on average spent R15 billion on procurement processes so Provincial Treasury has started focusing on how to put this money to better use and improve service delivery - hence the procurement strategies. The value for money assessment process would use data to identify areas of improvement in the procurement strategies but over the medium and long term is to build Provincial Treasury’s capacity to perform these services.

Ms Ebrahim gave a brief background on the e-procurement system which began as a granted exemption from National Treasury on the IFMS. It eventually officially commenced on 31 December but with limited commodities and with parallel systems running. The contract of the old
e-procurement system would end on 31 March and there was a parallel process and decommissioning taking place. Provincial Treasury was focused on a very rigorous change management and change control process which involved training. Physical training with departments and suppliers has been done, apart from the user acceptance testing with both categories. Provincial Treasury has invested in voice-over video capabilities to accommodate suppliers and Provincial Treasury officials who were in isolation due to COVID-19. Provincial Treasury was innovative and found the innovative space to be exciting. There were no significant challenges yet and the ICT team and DTPW have assisted in giving Provincial Treasury support in implementing the system successfully and it looked forward to the 1 April implementation.

Ms Smit replied that the audit costs were for the Provincial Treasury vote and the provincial revenue fund as well as the consolidated financial statement audit. Other departments are responsible for their own audit costs.

The communication programme had a 39% decrease due to lockdown and staff worked from home whilst Provincial Treasury gave data allowances to staff members working from home. However, from 1 November 2021 staff started returning to the office and therefore no data allowance is paid to staff now.

There was no allocation for legal fees in the previous financial year, but Provincial Treasury made provision for litigation on some gambling issues such as free-to-play as well as the 19th Gambling and Racing Amendment Bill.

For travel and subsistence, there was an increase. Travel and subsistence were very limited in 2021/22 due to the lockdown, social distancing and virtual meetings. Provincial Treasury has made provision in 2022/23 for travel because some instances would require face-to-face meetings such as municipal site visits.

On social benefits, Provincial Treasury only made provision for leave gratuities as well as early retirement costs when it is certain. In previous financial years, provision was made but it is very limited in this financial year because they only knew about one person taking early retirement and that cost is associated with that specific person.

Closing remarks by Department
The HOD said Provincial Treasury valued the questions and hoped they were answered with satisfactory reposes. Some questions spoke to key aspects of the execution of Provincial Treasury’s strategies and were welcomed. It was going to be a challenging and exciting year for Provincial Treasury and hoped that the Committee saw that Provincial Treasury was both ready and able to execute this. It looked forward to ongoing engagements with the Committee.

The Chairperson appreciated the comprehensive responses.

Committee resolutions
Ms Nkondlo asked that the Committee interrogate the first round of infrastructure reports as the Committee did not know what was entailed in performance reporting. She advised that the Committee make suggestions on areas of reporting like skills transfer and skills development, grading, professional business services along with the infrastructure projects.

Mr Mackenzie asked that the Provincial Treasury provide an update on the financial year profits. He asked for a status report of the e-procurement system once they have moved over and if there are any challenges. He asked that it present the Beaufort West municipality intervention and financial recovery plan.

Committee Report on Vote 3: Provincial Treasury in Western Cape Appropriation Bill
The Standing Committee confirmed deliberating on Vote 3.

Mr Mackenzie and Mr America supported the Vote. Under Standing Rule 90, Ms Nkondlo exercised the right not to support the Vote.

The Chairperson thanked Members for their votes. He read the Committee Report approving the Provincial Treasury budget and that the ANC expressed its minority view not to support it.

The Committee Report was adopted with the minority ANC view.

The Chairperson thanked the Committee Members and the support staff.

The meeting was adjourned.