Western Cape Appropriation Bill: Provincial Treasury

Meeting report

Opening remarks by the Minister

Ms Mireille Wenger, Minister of Finance, Economic Development and Tourism, said the Provincial Treasury received R340.7 million for the 2023/2024 financial year. This is a R16.5 million increase from financial year to financial year or an additional R37 million over the medium-term expenditure framework. A budget allocation of this size makes the Department one of the smaller departments, but it remains one of the most critical enablers and an assurer of good governance.

This budget continues much of the Provincial Treasury's excellent work over the last year, including cultures and values, risk management, infrastructure management systems and reporting on infrastructure development. This also includes the Fiscal Futures Project. It is known that with an increasing population, evidence-based spending is needed. The team works on budget implementation and expenditure reviews. In addition, the team is working on reporting reforms and integrating management between the province and municipalities. The Department aims to shift from pure compliance to the Treasury being an enabler. Additional funding for supply chain management reform, data technology, and integrated systems has been allocated. Modernisation has been a big goal for the Department, aiming to modernise its system and offices.

Remarks by the Provincial Treasury HOD

Mr David Savage, Provincial Treasury HOD, boasted about the current financial year that has displayed excellent success in the progress and execution of the Department's strategy. Focus has been placed on governance transformation and integrated service delivery through integrating financial governance and ensuring effective local governance. Priority focus has been placed on supply chain management reform and infrastructure investment. Support is provided for these through three strategic interventions. The first, given the nature of the Provincial Treasury, is around effective management of the talent pipeline. The staff of the Treasury are critical to the work that must be done. Further, the Department is prioritising its journey of digital transformation.

One of the critical areas that the Department is building on is the expenditure reviews of the Fiscal Futures Project, which is making encouraging progress towards more evidence-led budgeting. This is being integrated with the work the Department does on economic reviews and analysis.

The Project aids in the integration of financial and non-financial basis progress across the provincial and local government reporting environment. This will provide for systems environments in Program 3, where expensive systems are managed. It is a great financial management system that should be rolled out nationally, and for the Western Cape, it is a pilot site which requires a lot of background and teamwork. The Department is working towards outputs based on a client-customer focus. The digitisation of subsistence and travel is also mentioned. Various datasets will be introduced so that managers can efficiently manage their resources.

Talent management in the Provincial Treasury is an ongoing opportunity. The Department is making progress in achieving its employment equity targets, yet some challenges do still exist. An approach to growing timber and complimenting it with external recruitments will be implemented. Young interns are already involved and have been exposed to the finance team and an operating environment. The office space should be modernised to accustom to hybrid working arrangements and also make use of all the office space. This modernisation will reflect the Department and the way in which it does its work.

In addition, the Department will be focusing on better tracking its digital transformation activities. It will focus on strengthening the measures taken to integrate and strengthen its overall internal governance systems. This will include its perspective on budget processes concerning revenue management and retention. Policy and oversight mandate for the Department is also very important concerning the Gambling and Racing Board. In Programme 3, supply chain management reform is centralised and relates to the strategic sourcing and commodity-based approach across the province.

Discussion

Mr A van Der Westhuizen (DA) explained that in software development work, systems move very swiftly, and this could be the problem with this system. Just as a new system wants to be introduced, then something else has been implemented, and systems have to start from scratch. He presumes that the project has seen a lot of expansion. For many years it has been said that the Western Cape is identified as a pilot. More explanation on that statement is required. What is the progress made on the various software systems? Is more support given from National Treasury? If not, can this system be passed on to somebody else? Mr van der Westhuizen is concerned that introducing this new software system will consume a lot of time and cause a lot of frustration.

The Racing and Gambling Board envisions being less dependent on provincial funds and aims to eventually move to a system of self-sufficiency or self-funding. Can more information be given on how this is being managed?

The Chairperson mentioned dashboarding and integrating data sets. How is the tracking being done for this, and what sort of software is being used in this process? On the Minister's remarks about a move from compliance, can she please elaborate on the challenges and how they have been mitigated?

Response

The Minister said to the Chairperson that the Department is trying to shift focus towards areas besides compliance. Focus will be placed on how the Department can enable and assist, through infrastructure reporting, better service delivery. Focus will not be based on sustainability alone, but also on growth and the growth of municipalities.

Mr Savage explained that it has been very frustrating as various national challenges have delayed the Intergrated Financial Management System (IFMS) rollout. The systems currently being worked on are very old and are written in languages that are no longer used in software development. The Department does not want to wait for the IFMS to come along. They want to be present with establishing the IFMS and the evergreening process. The Department's data warehousing initiatives aim to lay the foundation for an IFMS that solves problems within the province. Instead of waiting, the Department has looked at international examples of big IT systems rollouts, and there have been various good international examples. Many challenges have been found, but many lessons have been learned. Successful rollouts of large IT systems do not take an entirely top down approach. They seek to solve the most immediate problems in front of the users of those systems and build out from there. The Department's initiatives and evergreening in data warehousing is to solve those immediate problems and use that to help influence as a pilot site as the actual rollout mechanisms for the IFMS emerge.

The Department has taken the position that they can no longer afford to wait. It will only become a “poisoned chalice” if the Department waits and is a silent recipient. Government-wide IT systems will be introduced as part of the IFMS. It should not be viewed as a “poisoned chalice” as there is an urgency from the Department to take a leading role and accelerate the IFMS in the design and the rollout.

The process of the Racing and Gambling Board becoming more independent has been slow. The Department would like to move to a self-sufficient system in this sector. The Department is busy with a process to review gambling regulations in the Western Cape. The sector itself is in the process of fundamental change with gambling preferences changing quite significantly. There have been shifts to online gambling and sports betting, and some other markets, like the casino markets, have matured. The Department is cautiously moving and wants to ensure that movements are policy-led. Bigger policy questions are how the board is funded to direct it towards self-sufficiency, much like other regulatory entities in the province like the Western Cape Liquor Authority. The intention to move to self-sufficiency remains so that they can cover their own costs rather than being taken from the fiscus.

There are a lot of details that have to be given about dashboarding. It is not just about the digital systems but also about making sure that the Department has the skill set to continually innovate in this environment and respond to user needs. The Department works very closely with the CEI in this respect and is making considerable investments in staff to use and innovate technology. The results of that training are amazing. Various reports are coming through where one can clearly see the application of data visualisation techniques, advances in data integration, etc.

On the challenges of moving from compliance, there will always be challenges in a system that has put considerable effort into getting the basics right in building a governance platform. The Western Cape is now trying to ensure that the Department is leveraging that for service delivery outcomes.

The biggest issue is a complex, highly regulated environment to navigate. Process or review of challenges in the supply chain environment unpacks the challenges and how the Department tries to release some of those challenges. Often those challenges are said to be regulatory. It has been indicated that the Provincial Treasury can start to build systems and Departments that can be cultured in the supply chain management environment that will enable a shift.

Mr Isaac Smith, Chief Director: Asset Management, Provincial Treasury, explained that the Department has been waiting for the IFMS for a long time. The Business Intelligence (BI) assisted the Department with business information. The delay in the IFMS prompted the Department to start initiatives to deal with the data in the legacy systems better. That is also where additional funding will be allocated. All information has to be gathered from the legacy systems and dumped into the warehouse. Assistance is required from National Treasury. This assistance is required with the Microsoft BI tool as the Department intends to build dashboards. Some members have already undergone training at the London School of Economics, and others have also done the Microsoft BI tool. All members are trained to fully understand the issue of boarding and how to analyse data. The data is important and needs to be clean, so it is important that when the data is dumped into the data warehouse, the officials understand the data. This forms part of the modernisation of the legacy system.

Integrated reporting is another component that the Department has been focusing on. Once the data has been cleaned up and dumped into the data warehouse, the intention is that integrated reports can be developed. There is a group within public finance who are undergoing the Microsoft BI tool training. Once all officials are able to use this tool, it will enable the Department to do much better reporting. However, focus is not on financial systems alone as data systems have developed various strategies focusing on both financial and non-financial information. The Department is also busy assessing local and provincial government tools so that all officials within Treasury can access all the information. This will ultimately result in better services to the Department and municipalities.

One of the issues highlighted in the iterative adaptation approach was that procurement resulted in a stumbling block for service delivery. Another issue is the automation of systems and whether the systems integrate with one another. The Department is also in the process of getting together CI and focusing on all the applications used. It is trying to see what other systems exist, apart from the legacy systems.

Mr Aphiwe Mazomba, Director: Supporting and Interlinked Financial Systems, Provincial Treasury, explained that it had been at least 15 years and the IFMS has not been implemented. This delay is due to difficulties around service providers for implementation, in addition to decisions that need to be taken between the PSA and National Treasury. A choice has to be made about the already procured EBS system that is very old and will no longer be supported in 2032. The idea is to move towards a cloud implementation. These decisions have to be made by National Treasury, and it has resulted in the delay that is currently being experienced. Lessons have been learned from the Astonia model and ways of implementing it in the Western Cape are now being considered.

Focus is now placed on modernising the legacy systems as national systems should be used to support transactions that occur within government. The Department is heavily focused on integrated reporting, which includes the Microsoft Azure platform. The SCI is supporting the Department in creating a data warehouse where all data, financial and non-financial data will be housed. It is also key that this data is housed within the Western Cape because of POPI Act issues that may cause problems when the personal information is not seated anywhere else but within the government.

Great value was seen in sending data stewards to attend data analysis courses, and the way in which the Provincial Treasury uses the data has also improved. Multiple reports are sent out and it is used by the CFOs. Assets bought by the state are monitored and the energy expenditure will now be tracked. Many of these ongoing projects are bound to technology, and the Department is delighted that there is investment in the space of digital transformation as it will help the Department achieve its goals.

Discussion

Mr van der Westhuizen noticed some movement regarding the public sector salary negotiations. To what extent can the figures that are presented be accepted, especially when there are discussions about compensation of employee budgets?

There seems to be a shift towards administration, which may cost other programs. More clarity is needed on this shift. Administrations sound less service orientated, and it shrinks the support of other programs.

Ms N Nkondlo (ANC) asked if the Department could provide the research results of the provincial and local government fiscal policy. What are the most noticeable issues? If there are problems with the current budgets, then the Department should explain and give more insight on it. How would the provincial and local government remain independent from a fiscal point of view? How will the Department manage headcount to ensure that discipline is attained? How does the Department handle service delivery with the increase in population size as resource allocation is always an argument with National Treasury? The idea of outsourcing is on everyone's tongue as input is needed to do particular work that requires special skills.

Mr I Sileku (DA) asked if the Department had considered reviewing how municipalities are funded. Underfunded mandates are always an issue. Have there been any discussions about this? On page 99, there is a mention of R381 000 being underspent. Can the Department provide clarity on this?

The Chairperson raised her concerns relating to page 111. She wanted to know more about data management and integration systems. Does the Department see any future applications that could result from this? This could be beneficial. The data might help with health services, social development or to fight crime as it could help with the understanding of the citizenry. The ways that data can be applied are immense and it is important to know how else the systems could be used.

Response

Mr Savage said that wage negotiations are currently being discussed and it is too early to tell. The easier answer is that an intergovernmental update will be given.

The Department plays a monitoring and oversight role for local government which it undertakes continuously (both monthly and quarterly). The Department also regularly engages with municipalities in detail and qualitatively throughout the year. 

Strategic conversations are held where inputs are given regarding budgeting processes and technical engagements like budget executions and implementations. The information and understanding not only apply to the Western Cape but also provide understanding of international concerns. The Minister introduced the Provincial Governance and Budget Council, where she has regular meetings with all the executive heads of finance across the municipalities. The first meeting was held in Caledon about eight weeks ago. There are various intergovernmental relations in the Provincial Treasury, such as the Technical Committee on Finance. Provincial Treasury also has meetings with National Treasury, covering a broad range of issues.

As enshrined in the Intergovernmental Fiscal Relations Act, there is a very robust process with good technical backup. This allows the Department to navigate the concept of independence, cooperative governance and joint decision making on a range of issues. Frontline services that are expanding their headcounts have undergone significant expansions. This includes additional teaching posts with the Department of Education and significant expansions on social worker posts with the Department of Social Development.

The Department is working with more real time non-financial data, which is both economic and contextual data, as it is reporting reforms in local and provincial government. The Department works closely with other Departments and the Provincial Data Office as they put reports together illustrating data. The Department is very actively looking into getting real-time proxy data that gives a realistic feel of what is happening in service delivery across the province.

Ms Annamarie Smit, Chief Financial Officer, explained that there are assumptions that no provisions were made for the improvement of conditions of service, except for the 15% by progression and the carry-through cost of the 2022 year. Adjustments had increased regarding medical aid and housing. The outcomes of the wage negotiations will depend on whether additional funding will be allocated in the budget as it was not budgeted for. In Programme 1, many things are included in the budget, such as payments for vehicles and laptops that will be utilised in other Departments as well. Therefore, Program 1 has a higher-than-normal budget. The entire modernisation process funding has also been added to Programme 1. There are a number of vacant posts, but the Department is trying to optimise the utilisation of the current staff members by making them more involved in projects which will aid in transferring skills. Hopefully, all functions will be able to be done internally.

Ms Shirley Robinson, Chief Director: Public Policy Services, explained that the conceptual process is from the socioeconomic context to understanding the fiscal response and the fiscal framework response of both provincial and local government. There are currently a lot of innovations and work undertaken by the consultants. Consultants are the specialists and offer technical assistance that the Department would not wish to employ on a long-term basis, but they are critical for a short time basis. There has been a dynamic framework given the national fiscal constraint and the team led by Malcolm Booysen has been engaging in understanding data and the formula of changes. Consultancy projects are institutionalised over time, and the first draft project is on its way. The team has started to play with scenario-driven options over time to understand the dynamics that affect fiscal frameworks as well as the field of management or gambling policy. This understanding can change the gambling terrain and a lot of gambling research has also been undertaken.   

Ms Analiese Pick, Chief Director of Provincial Government: Public Finance, said that the compensation of employees as ministers and the head of Treasury indicated that a differentiated approach would be followed. The context of service delivery first has to be understood for each Department. When new headcounts are compared to previous headcounts, there are increases. An example of this increase is in education. It is projected to increase from 44 600 to 46 800 in terms of headcount. As indicated in the budget, social workers are projected to increase from 2 500 to 2 700. Health finds itself in a different position than other service delivery departments, mainly due to the impact of COVID-19. During the pandemic, the Department had to increase the number of staff and now they must decrease those numbers. This budget does try to reduce the COE headcount and slow it down to make it about natural attrition. Mitigation has been implemented in the Health Department as much as possible, and it is looking at labour productivity to improve efficiency and productivity.

Mr Steven Kenyon, Chief Director: Local Government Public Finance, explained the issues around underspending on interventions. He noted that it is a tricky area as the municipality was under intervention because of financial problems, hence Provincial Treasury is very cautious. Before making any transfer, it is visible that the Department has tried to rebalance how it distributes the available funds to support interventions over the last two years. Focus is shifted to more consulting services so that transfers can be made from the provincial Department and deployed to provide support in the municipality. Money has also been shifted to support employment and staff capacity costs. It is a very labour-intensive intervention.

There was an intervention in the Kannaland municipality as projects were prepared to launch there. However, in October 2021, they were no longer eligible to receive funds. The Department is very cautious before spending any money, and in principle, they would rather incur underspending than make a risky transfer.

This year the Department is making use of the FCC recommendation response process. There was also a recommendation around district funding. The Provincial Treasury and the Department worked to create change in growth rates and equalisation. These changes are discussed in budget forum meetings. The Department did not get everything it wanted as the National Treasury will phase in change. Instead of  2.2% growth rate this year, municipalities will get a 2.9% growth rate. Next year the growth rate will be 4.5% and the year after 6%. If these figures are placed in Rand values, the four districts in the province would add up to R4 million in year one, R17 million thereafter, and R40 million additional that comes to the province that would not have flowed in if it was not for the engagement.

Discussion

Mr van der Westhuizen suggested that smaller municipalities should get more financial support. He did not expect that the City of Cape Town would need support from the province. How was the decision taken as to which municipalities will be supported and which municipalities would now be supported and linked to the engagements that were discussed? How does government assist the smaller municipalities with the burdens of reporting that link back to the development of the Integrated Financial Management System? To what extent can these financial reports be generated automatically?

Ms Nkondlo said that with COVID-19, the Department of Health had to innovate and bring in more staff but now some of the staff has to be laid off. More clarity is needed on this strategy. Transparency is needed in all reports and procurements, especially when spending and managing current crises such as the electricity issue.

Mr Sileku referenced page 128. In terms of the Western Cape financial management capacity grant, where municipalities have been allocated funding for the 2023 - 2024 financial year, fewer than ten municipalities received funding. More clarity is needed from the Department to explain this process.

Beaufort West has been put under 139, subsection 5 in terms of the recovery plan. Are there any concerns the Department would like to share with the Committee regarding progress? On page 88, reference is made to the infrastructure unit. More information is needed on how it links the different Departments with municipalities. Are there any concerns about qualifications or competence that have been brought forward?

The Chairperson noted that there had been a huge increase of about 156%. She needs a better understanding of why this was prioritised and why support for municipalities is so critical.

Response

The Minister clarified that the Department is not laying off staff. It is just not renewing contracts as there are difficulties with the COVID-19 funding that is no longer accessible, which led to real and tangible effect on provinces. The Department is trying to see how the procurement disclosure, the government practice which was pioneered during the COVID-19 pandemic, can be adapted and shifted to see how this report would be relevant within normal procurement practices. At the moment, the Department is contemplating a quarterly report as it might be necessary to publish more regularly and perhaps on a monthly basis.

Mr Savage explains that grant funding is only one way in which the Department and National Treasury fund municipalities. There is a range of initiatives. The municipalities participate across various areas, from accounting and governance to revenue management.

Mr Kenyon said that when the Department looks at supporting municipalities, the entire MFMA team in the Treasury provides support. Grant funding is one component in the overall budget which links with various training initiatives. Training initiatives include accounting, governance and reserve management. Much of the budget is spent on staff and training the associated team. Staff from various departments support smaller organs within different municipal branches. The staff works alongside partners from the provincial and national governments who provide full-time support programmes. The Department noted that one of the main impediments municipalities face when attracting skills are working conditions and providing stability for employees.

Grant allocations are made in the budget allocation process during the March budget which allows for financial transparency. The municipalities are chosen to create municipalities with strong financial management capabilities that can support service delivery and enable growth. Based on this, a mix of municipalities is selected as an example; the Cederberg municipality was provided with a financial support programme to help increase financial stability. In a municipality like Cape Town, the Department supports proposals leading the municipalities’ growth agenda. The application process is led by a call for proposals, after which municipalities can apply. These proposals are usually submitted in January; an assessment is run based on this. The submission is graded against set criteria used to determine funding allocations. The Department considers whether proposals have the potential to be replicated in other municipalities. The municipal bursary funding competence was also heightened with the grant allocation. The Department clarified that all 30 municipalities could apply for the grant.

Beaufort West's recovery plan includes requesting the municipality to submit quarterly reports to the provincial and national levels. This has assisted with the financial stability of the municipality. An example of this was the municipality’s ability to agree to repayment to Eskom. The aim is that financial recovery should be reached within three years. The MNFNA was drafted on paper but has yet to be implemented through the allocations of funds. 

Ms Melissa van Niekerk, Director: Financial Governance, addressed municipal assurance by noting municipalities’ medium-term plan to mitigate risk. The effectiveness of internal audit units and risk management units is integral to this plan. Municipalities are provided with a combined assurance initiative. The Drankenstein municipality was used as a pilot project which will be run leading up to the next finical year.

Mr Smith said that municipalities have different capacity capabilities. A significant issue is the high turnover of staff within supply chain management. To address this, a standard policy was developed with which municipalities had to apply internally. A lot of effort will go into capacitating municipalities through a district approach.

Further discussion

Ms Nkondlo sought clarity on the 48% infrastructure finance increase. There are relatively complex infrastructure and challenges.

The Chairperson wanted to know how the current database system relates to the ongoing interventions.

Response

Mr Savage reiterated that the intervention includes a panel of specialist infrastructure experts for the Department. There are a number of relatively complex infrastructure financing or alternative infrastructure financing challenges and support will be provided.

Mr Smith explained that the Department received additional funding for digitisation. It has allocated that amount to computer services hence the increases specifically on property payments.

The Chairperson appreciated the comprehensive responses.

Resolutions by Members

Mr van der Westhuizen recognised and acknowledged the dedication and hard work that the Department has been doing. However, he does not understand the rationale behind how municipalities are assisted financially. He recommended that the Department informs the Committee through writing on how they allocate funds to municipalities and how much funds.

Ms Nkondlo recommended that the Committee receive more clarity on increasing productivity and how it gets recognised. What came out of the research done by the Department on its fiscal framework? Can these results be shared, especially the results of the strategy in real terms?

The Chairperson suggested that the report that Ms Nkondla is requesting should not only come from the Premier and Provincial Treasury, but also from the local government to explain the challenges identified in attracting skilled staff to work in struggling municipalities.

Ms Nkondlo suggested that adding local government is not the actual issue as she is interested in the big Departments such as education, social development, and the Department of Health. These Departments are at the core of service delivery and innovation.

Mr Sileku recommended that more information is given on the combined assurance framework. He wants to know where it has been tested.
 

Draft Report on Vote 12: Provincial Treasury in Western Cape Appropriation Bill, 2023

Mr Sileku and Mr van der Westhuizen voted to adopt the report.

Per Standing Rule 90, Ms Nkondlo exercised the minority right not to support the adoption.

The Committee Report was adopted with the minority vote.

The meeting was adjourned.