Conditional Grants: input by Departments

NCOP Finance

06 March 2001
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Meeting Summary

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Meeting report

FINANCE SELECT COMMITTEE

FINANCE SELECT COMMITTEE
7 March 2001
DIVISION OF REVENUE BILL: CONDITIONAL GRANTS FOR DEPARTMENTS

Relevant submissions:
Water Affairs & Forestry Department
Education Department
Housing Department
Public Works Department

Summary by Director General: Department of Social Development
Social Development Department
Provincial and Local Government Department [PowerPoint presentation, email info@pmg.org.za for text version]

Chairperson: Ms D Mahlangu

SUMMARY
Seven department were present to give an account of their conditional grants as derived from the Division of revenue Bill. The Department of Water Affairs and Forestry briefed the committee on their major programmes. Its concern was that the conditionality provisions in the Bill would lead to underspending or misspending. The National Treasury was surprised by remarks made by the Director General of Water Affairs that the National Treasury is hampering the completion of some of their projects. The Director General of the National Treasury was unaware of such problems and felt that these should have been discussed and solved outside of Parliament.

The Director General of Education gave an overview of the grants that have been allocated to them for the financial year 2001/2002. He felt that conditional grants are useful tools in identifying shortfalls in government departments, that is, it leads to improved transparency. The tender process as well as the divergence in timing of the Education department’s academic and financial years was discussed.

The Director General of Housing briefed the committee on its two housing grant systems highlighting some of the objectives and conditions of the respective grants. The issue of the housing backlog and concerns over underspending by the Department of Education were discussed at length. The controversial topic of how certain individuals were able to qualify for second subsidised houses was also raised.

Public Works: The Community Based Public Works Programme is a specific poverty relief grant which produces useful community assets (such as community halls) while also creating employment through the construction process. It is located primarily in the rural communities and is aimed at providing employment to the very poor. The grant is a long-term poverty relief programme with an expected term of at least fifteen years.

Social Development: There are two conditional grants namely the HIV/AIDS grant and the grant for Improvement in Social Security. In the past the implementation of programmes funded from the HIV/AIDS grant has been slow. This is partially attributed to the complexity of developing an integrated plan as well as limited capacity in the provinces. However, the National Department stated that it does have the capacity to manage the conditional grant.

Provincial and Local Government: The Department has five grants. These grants focus on small to medium sized municipalities that are in difficulty. Currently the Department makes allocations to provinces each year. Ideally they would like to move to a three-year allocation. This would allow provinces to plan

MINUTES
Department of Water Affairs and Forestry
The Director-General of Water Affairs and Forestry, Mr Mike Muller, briefed the committee on the Department’s current major programmes: (i) Capital Programme and (ii) Operational Programme. The first is to provide an infrastructure for the provision of water services to rural areas where it is lacking. The second is to provide for an overall cost effective infrastructure for water supply and operation. He stated that the Bill has a substantial impact on the effectiveness of high priority water and sanitation programmes. The overly tight linkage of allocations to individual municipalities would prevent reallocation to projects in other municipalities where there is slow delivery or reluctance to meet conditions. He noted that it is the Department’s experience that there is often resistance by municipalities to take responsibility for supplying poor communities. He felt that the Bill in its current form also places administrative burdens on the Department of Water Affairs and Forestry, which would probably affect the Department’s ability to deliver their programmes efficiently and effectively. For detail on the Department’s concerns please refer to the attached document.

Discussion
Ms J Fubbs (ANC, Gauteng) asked for clarity on how the Department assists municipalities that have problems with capacity.

Mr Muller stated that they inevitably work with many of the weakest municipalities. He pointed out that they do not merely provide these municipalities with funds. The Department provides capacity assistance to these municipalities by way of setting up programmes and frameworks. Once such a framework is up and running, it is handed over to the municipality itself.

Ms Sithole (ANC, Northern Province) referred to Mr Muller’s remark that certain projects of the Department would not be completed unless the National Treasury intervenes. She asked for comments from the National Treasury.

Mr I Momoniat (National Treasury) was surprised by Mr Muller’s remark. He stated that they had engaged in extensive discussions with the Department and believed that all parties were in agreement. Mr Momoniat added that there are minor issues that need clarification but otherwise felt that the problems had been solved.

Mr Muller reacted that certain of their concerns have been addressed but many more must still be addressed. He stated that it is not only a simple matter of transferring funds to municipalities. The need exists for proper frameworks to be put in place.

The Chair stated that the South African Local Government Association (SALGA) had highlighted the capacity problems of municipalities. She asked Mr Muller to elaborate on the issue.

Mr Muller stated that during the next two to three years, they wish to provide direct technical support to municipalities. He added that they are working with the Department of Local Government to build the capacity of municipalities.

Ms Fubbs asked why problems exist in meeting deadlines for the completion of projects. Why has a proper business plan not been put in place. What is being done to address these problems? How "hands-on" is the Department? Do municipalities do as they please?

Mr Muller stated that business plans are in place but that they need to co-ordinate them with local governments. He added that the Department has been running capacity-building programmes for the last three years. Mr Muller also highlighted the fact that programmes are in place to encourage co-operation between departments.

Mr Makgatlo (ANC, EC) felt that conditional grants should stay. He proposed that the Department should hold discussions on the issue horizontally with other departments and thereafter vertically down with local governments.

Ms Maria Ramos (Director-General on Finance) categorically stated that the conditions attached to conditional grants are there for a specific purpose, that is, to facilitate the planning of conditional grants. She emphasised that they have had exhaustive consultations on the issue. She noted that the current Bill simplifies the Bills that have come before it. It essentially sets out a better framework for local governments and municipalities to function. Various departments would have to work together constantly to ensure proper implementation. Ms Ramos therefore felt that little issues should not bog down the process of co-operation.

Mr Muller agreed with Ms Ramos and stated that their objectives are coherent.

Mr Kahla (National Treasury) felt that the concerns that had been raised were done in a very alarmist fashion. He emphasised that the problem is that the Bill is read in bits and pieces. He suggested that the sections must be read as a whole in context.

Ms Ramos added that it is unfortunate that such matters had to be discussed in Parliament when they could have been discussed amongst themselves as departments.

Department of Education
Director-General of Education, Mr Thami Mseleku, and the Chief Director of Education Planning, Mr Bobby Soobrayan, conducted the presentation, which dealt with the conditional grants that have been allocated to education for the financial year 2001/2002. They were the following:
(i) Financial Management and Quality Enhancement in School Education
(ii) Early Childhood Development
(iii) HIV/AIDS
The conditional grants enable the Department to work together with provincial education departments to address the strategic policy and implementation prorities in the system. The Director General stated that the experienced gained on the mechanism and implementation of conditional grants has benefitted all spheres of education. For example, lack of capacity of many provincial education departments was identified and verified by the under expenditure in these departments.

For detail on the conditional grants please refer to the attached document.

Discussion
Mr J Ausebrook (IFP, Kwazulu-Natal) asked if it was correct that provincial grants would be audited provincially. He was concerned that this oversight function would not be performed.
He referred to the HIV/AIDS grants and asked if care and support of sufferers should not fall under the ambit of the departments of health and welfare. Is there care and support for students at school infected with HIV/AIDS?

To the first question, Mr Soobrayan stated that they have been paying attention to non-financial monitoring. The Director General said that they are engaged in integrated HIV/AIDS programmes with other departments. He felt that empowering educators is a good way of creating awareness of HIV/AIDS care and support programmes in communities.

Mr Makgatlo (ANC, EC) felt that the awarding of tenders needed to be scrutinised. He asked for comment. He also asked what the Department’s role was with regard to donor-funded nutritional programmes. There appeared to be no systematic intervention by the Education Department.

Mr Mseleku replied that they have asked the Department of Public Works to scrutinise the current tender process. They have also had discussions with the National Treasury and the Tender Board. On the issue of donor funding, he said that the problem was that everything takes place at provincial level. Thus it is difficult for the National Department to keep a check on it. Mr Soobrayan added that legislation has been drafted to address the issue of donor funding.

Ms Fubbs noted that in education, an academic year is very different to a financial year. The spending patterns of the Department of Education over the year are very different to other departments. When Education spends more, others spend less and vice versa. How does the Department cope with this?

Mr Soobrayan conceded this was a major problem. In September of each year, the Department must be able to tell schools what their respective budgets are for the following year. This creates an anomaly, as the provincial departments themselves do not know what their budget is for the upcoming year. Mr Soobrayan did state that they are discussing the problem with Treasury.

Ms Sithole asked why there was a two-year delay for the approval of their financial managers. Has approval been given and are they appointed? She also asked what is being done to ensure compliance with the Public Finance Management Act (PFMA).

Mr Soobrayan replied that there was a delay because they had to follow certain processes and procedures. He noted that it is the financial managers that would be responsible for improving compliance with the PFMA.

Mr Marais (ANC, OFS) asked what the educator to learner ratio is at present.

Mr Mseleku replied that they were only able to make comparisons between provinces. At present the average ratios at primary school and high school are 1: 35 and 1:40 respectively. He emphasised that various factors must be borne in mind when considering these ratios.

The Chair asked who is responsible for the beautification and security arrangements at schools. Is it local government or the Department’s responsibility?

Mr Mseleku agreed that schools should be beautified and said that they have programmes in place to address the issue. The Director General pointed out that security at schools is a priority of theirs. Over the years allocations in the Department’s budget for security of schools has been made on an irregular basis. Questions had been raised in the past about whether security of schools should be the responsibility of the Department of Public Works.

The Chair requested the Department to provide the Committee with further information on the conditions attached to the grants.

Department of Housing
The Director-General, Ms M Nxumalo, dealt with the two housing grant systems: the South African Housing Fund and the Human Settlement Redevelopment Programme. She highlighted the objectives and conditions attached to the respective grants. She also explained how housing funds are allocated. For detail on her presentation please refer to the attached document.

Discussion
Mr Makgatlo asked the following questions:
(i) Does the Department conduct impact assessment surveys?
(ii) Is the Department involved in outreach programmes?
(iii) Are the Department’s backlog figures accurate? What figures has the Department been using in assessing its performance.
(iv) Has the Department been involved in a people’s dialogue?
(v) Does the Department have an accurate database on development programmes?

Ms Nxumalo responded as follows:
(i) The problem remains that national impact assessment surveys have not been conducted. Even though provincial impact assessment surveys have been conducted, they have not been effective.
(ii) The Department is involved in outreach programmes at national, provincial and local government level. The programmes have been most successful at local government level as local authorities interact directly with actual beneficiaries of houses.
(iii) The Department is currently using the census figures from 1996, as they are the only ones that are available. A system called Nomvula is currently being used by the Department to give them an idea of how many units have been built, the builders who built them etc. Ms Nxumalo commented that they do have problems with the quality of the houses that are being built. It is for this reason that they insist on builders being registered with the National Home Builders Association of South Africa.
(iv) The Department has difficulty in monitoring this. Ms Nxumalo stated that homelessness is a landlesness problem and therefore, keeping track is a problem.
(v) The Department has different permutations for people’s dialogue. It has been successful even though progress is slow. A fund that contains R10m has been set aside for people’s dialogue programmes.

Mr Ausebrook asked the following questions:
(i) Why was there no agreement between the National Treasury and the Department of Housing on when expenditure actually occurs?
(ii) What is the Department’s policy on the acquisition of a second house?
(iii) Is an individual able to get a subsidy for an urban home if he already owns a rural home?
(iv) In the context of polygamous marriages, would a man be able to get a second subsidised house for his second wife.

Ms Nxumalo gave the following responses:
(i) Discussions are ongoing with the National Treasury on the issue of commitments and expenditure.
(ii) No individual is allowed to get a subsidy for a second house. The Department’s system is highly advanced and individuals who have already received a subsidy are automatically excluded. However the system is identity number dependent. If a person has two identity documents, he may be allocated an additional subsidy under the second identity number. Therefore the possibility of fraud does exist.
(iii) The same rules apply as with a subsidy for a second house.
(iv) The issue of polygamous marriages is definitely regarded by the Department as a challenge. Ms Nxumalo noted that any person who enters into a polygamous marriage has to be financially stable so it is unlikely that such an individual would qualify for a subsidy in any event. However complications arise in rural areas where wealth is measured by cattle and not by the amount of money in your bank account. It is thus possible to circumvent the means test and still obtain a subsidy even though you own hundreds of cattle. The Department therefore has to reconsider what falls within the category of income. Ms Nxumalo conceded that issue was a great challenge.

Mr G Lucas (ANC, Northern Cape) asked if the Department was interacting with other departments on various issues. He also asked if it was true that the projected life of the housing fund is twenty years.

Ms Nxumalo replied that interaction with other departments is high on their priority list. The aim is to have joint infrastructure on problems that they have in common. She added that the twenty-year projected life span of the fund is based on a calculation that was done to assist the Department in dealing with their backlog promptly.

Mr T Taabe (ANC, Mpumalanga) asked if it was not easier to leave housing in the hands of municipalities and local governments. He believed that municipalities do have the capacity to undertake housing projects.

Mr Kumar, a representative of the South African Local Government Association (SALGA), stated that Category A and B municipalities do have the capacity to provide housing. Mr Momoniat added that housing is a complicated matter. There seems to be a lack of co-ordination between departments. For example when housing developments are undertaken, it must be realised that schools should also be built to cater for the education needs of the families that are going to live there. Mr Momoniat emphasised that underspending is also a problem of the Department. If funds are not going to be utilised it would make sense to redirect these funds to departments where they are needed.

Ms Fubbs asked what impact does AIDS have on the Department’s plans. She also asked for particulars on land release programmes.

Ms Nxumalo stated that studies are being conducted on the impact of AIDS. They are working in conjunction with the Department of Social Development to address the issue. Pilot projects have been started in Kwazulu-Natal and Gauteng. She stated that the biggest obstacle for land release programmes is when traditionally owned land is transferred to government. The Department is doing its utmost to fast-track the process.

Before adjourning the meeting, the Chair expressed disappointment that so many members were absent from the meeting. What made matters worse was that only one apology had been received.

Department of Public Works
The Director General, Mr T Sokutu, accompanied by the Deputy Director General, Ms L Bici,
spoke on the Community Based Public Works Programme (CBPWP). This is a poverty relief grant that produces useful community assets (such as community halls) while at the same time creating jobs through the construction process. It is located primarily in the rural communities and is aimed at providing employment to the poorest of the poor.

The grants are provided to the District Municipalities which then act as programme implementing agents to plan projects within that district. The Management Monitoring Information System is used to monitor financial progress, project details, and social employment data.

In the past the funds were confirmed late in the financial year. As a result, the Department was not able to spend all the funds. Thus, although the Department had committed all the funds, by the end of the financial year there were still roll-overs of unspent funds In the 2000/2001 year the entire allocation including roll-overs will be successfully spent on project implementation.

The CBPWP is expected to be a long-term poverty relief programme with a term of at least fifteen years.

Discussion
The Chairperson (ANC, Gauteng) referred to the Director General’s comment that there will not be a rollover into the 2001 financial year. She asked how much of the Department's funds they have spent.

The reply was that they have spent R605 million this financial year. R39 million is left. The amount that is left is less than what they spend in a month. They are confident that this amount will be spent by the end of March.

Mr Makgatlo (ANC, Eastern Cape) commented that the Public Works Department plays an important role in infrastructure building. He asked if the Department has a rehabilitation programme for existing infrastructure that is in disrepair such as schools and if they have a plan for new infrastructure.

Mr Sokutu replied that the conditional grants were used for the IDP. This money goes to creating new assets. There is a budget for maintenance of infrastructure. However the Department only does this if they are asked to do so by the municipality and if the maintenance cannot be covered by that municipality's budget.

Mr Makgatlo asked if the Department links up with other poverty alleviation programmes and Mr Ausebrook (IFP, Gauteng) asked if the Department's projects form part of integrated development plans by consulting with the provincial departments on their plans for a particular area.

The Director General replied that there is a linkage with other poverty alleviation programmes. He conceded that they are looking at improving interaction.

Mr Makgatlo asked if the Department keeps a database so that they know who has gone through the community based public works programme.

The Director General replied that they have identified the need for a database. Creating the database has been a challenge in that there are some problems of inadequate linkage with contractors. However, they are working on it.

An ANC committee member asked if the Department is satisfied that the process for monitoring programmes is in place and is working.

The Director General replied that there are monitoring mechanisms in place. Admittedly the monitoring mechanisms are not 100% perfect but they have a system. Ms Bici added that they also train people. For example someone in the municipality must understand business matters in order to check statements. They look at financial monitoring such as looking at statements and not performance monitoring.

Ms Sithole (ANC, Northern Province) commented that the Department must follow up on projects to ensure the structures in place are useful. For example, if a hall is built in an area, did that community really want it and are they using it?

Department of Social Development
The Director General, Ms A Bester, accompanied by Director of Social Assistance, Ms P Naicker,
spoke on the department’s two conditional grants. These are the HIV/AIDS grant and the grant for improvement in social security.

Social Security Grant: The objective is to improve the effectiveness of the processing of grant applications. In the past the funds for the re-registration project were fully utilised. However the funds aimed at improving financial management and establishing operation centres were not fully utilised. This is partly because of capacity constraints within the provincial departments.
The allocation for 2001/2002 is the same for all the provinces (except the Northern Province). There are conditions which the provinces must comply with in respect of the grant. One such condition is progress and expenditure reports. Monitoring takes place by provincial and national officials. This includes a quarterly evaluation by the departmental staff and provincial facilitators.

HIV/AIDS Conditional Grant: The purpose of this grant is to implement the National Integrated Plan for Children. In the past the implementation has been slow. This is attributed to the complexity of developing an integrated plan and limited capacity in provinces. The National Department says that it has the capacity to manage the conditional grant. They suggest that their performance should be assessed in light of:
- the timeous transfer of funds from National Treasury
- the quality of the support provided to the provinces on the effective use of the funds
- the effectiveness of monitoring systems

Discussion
An ANC member asked if the increase in the pension grant is coming from national or if the provinces will have to reprioritise to pay the increased amount.

The Director General replied that according to her understanding the increase was covered by the amount of the equitable share going to provinces.
[The Director General left because she had to catch a four o' clock flight. Ms Naicker proceeded to answer the rest of the questions.]

An ANC member asked for an explanation as to why pensioners were asked to re-register.

Ms Naicker replied that this is part of social grant administration. The point of re-registration is to determine where there is fraud and the extent of the fraud. The process is not complete yet but so far there has not been a lot of fraud. The process will be finished in March 2001. The only way to get some people to re-register was to suspend payment of their pension grants. When these people came to re-register they then received back-pay. Before the re-registration project, they had no mechanism to validate beneficiaries.

Mr Makgatlo asked if it is necessary to set funds aside for the re-registration of beneficiaries.

Ms Naicker replied that they had to give provinces finances to put systems in place.

Department of Provincial and Local Government
The Acting Deputy Director General, Ms J Manche, outlined the Department’s five conditional grants. These are:
- the Local Government Support Grant
- the Municipal Systems Grant
- the Local Economic Development Fund
- the Transition Grant
- the Consolidated Municipal Infrastructure Programme

These grants focus on small to medium-sized municipalities that are in financial and administrative difficulty. The Department works with the municipalities to assist them. Presently the Department gives an annual grant to the provinces. As the Department would like to have more predictability in the allocations to the municipalities, they want to move to a three year allocation (which would include conditional grants). Then municipalities can plan better.

The Transition Grant: This is a new grant only designed to exist for the next two years. There is no funding for the grant beyond this point. Its purpose is to deal with the costs of establishing municipalities in terms of local government restructuring. It is only for establishment costs.

Municipal Systems Grant: This is also a new grant designed for the new municipalities to develop and implement new systems as well as their Integrated Development Plans.

Consolidated Municipal Infrastructure Programme: This grant addresses backlogs at municipal level. In the past it tended to assist urban areas. Now they are ensuring that it also supports rural areas.

The Department wants certainty and predictability (beyond one year) around allocations. Accomplishing this with conditional grants will be tricky because circumstances change from one year to the next. One has to be careful with fixed allocations as priorities change over the years.

The equitable share to local government is welcomed. The Department realises that it is there to cater for basic services.

Monitoring and Auditing: These mechanisms exist for each grant. Provinces report to the Department on a quarterly basis. For some provinces there are monthly reports. They have sometimes taken drastic steps (such as withholding transfers) if a province or a municipality failed to report. The Department then reports this to the Director General of the National Treasury.
In one instance the Department did not get any reports from the Eastern Cape until late in the financial year. Because of this they visited the province and found that there was a poor system of record-keeping. This is a problem because the national department’s ability to comply with reporting requirements depends on provincial departments ability to report to the national department.

Conditional grants will be needed for some time to come. This is because there is a huge infrastructure backlog. In the long term they want to move away from conditional grants. As a country they have too many conditional grants in the system. What the country needs is one grant which can deal with different priorities and needs.

Life of Grants:
As long as there is an infrastructure backlog, the country will need an Infrastructure Grant. The Transition Grant only has a two year lifespan. They would like to phase out the Local Government Support Grant and the capacity-building of Municipal Systems Grant over the next five years. It is probable that these allocations will decline over the next few years.

Conclusion: Essentially the Department is happy with the Division of Revenue Bill. There are more reporting requirements on the accounting officers. The Department's ability to comply depends on the provinces and municipalities ability to comply who do not always have the capacity to comply.

Discussion
Ms Sithole asked what the Department was doing to capacitate the provinces and the municipalities to comply with reporting requirements of the Public Finance Management Act.

Ms Manche replied that the Department is looking at what can be done to build capacity. They are targeting municipalities. Treasury is also building the capacity of officials. The problem is that the money which could have gone to service delivery must then go to programme management.

Mr Makgatlo asked if the Local Government Support Grant and the Municipal Systems Grant from the Department talks to the Local Government Finance Grant from Treasury.

Ms Manche replied that the Department's grant does the same as Treasury's grant. The difference is that Treasury deals with metros while the Department targets small municipalities.

A committee member asked if the Department could be sure that the grants given to provinces were used for the stated purpose.

Ms Manche replied that there is an allocation which goes to the provinces. All grants allocated are based on receiving a business plan from the municipality. The Department is able to throw out plans which are not in line with the funds programme. Also they are able to see if the funds are used for the purpose by looking at the quarterly reports on cash flow. If the funds are not used for the stated purpose, then the Department has the power to terminate the funds or take some kind of action.

The meeting was adjourned.

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