Provincial Treasury Annual Report, underspending & irregular expenditure

Meeting report

The Chairperson said that a meeting with the Provincial Treasury (PT) followed the annual report resolution in 2022.

Provincial Treasury annual report overview

Mr David Savage, Head of Department (HOD), Western Province Provincial Treasury, reported on the underspending and its impact on the predetermined objectives for the 2021/22 financial year.

The Department had experienced underspending of 5.7%, or R17.6 million, of the final appropriation budget of R307.602 million. Exogenous factors such as global supply chain disruptions, bursaries that were declined and late claims submitted by service providers, had accounted for almost half of the underspent amount. Underspending from a policy perspective was due to not transferring public service grants to vulnerable municipalities. Gains were made on training at no cost, but procurement delays had been experienced. He said that the Department was predominately a compensating spending unit, and while delays were undesirable, the staff made sure to deliver on critical projects. The provisional numbers of the 2022/23 financial year indicated significant positive results from the interventions introduced by management.

Ms Annamarie Smit, Chief Financial Officer (CFO), said that the Department had achieved 88%, or 53, of the 60 targets set for the 2021/22 financial year, and had spent 95% of the budget. Reasons for not achieving targets included reprioritising the budget during the Covid-19 period, procurement delays and bursaries that were declined by students who had not taken up the offers.

Mr Savage outlined the context for the introduction of the condonation process for irregular expenditure, which had been a long-standing issue across government. The Department had in the recent past been given a greater role to play in the condonation process by National Treasury. A robust condonation process to account for irregular expenditure has been introduced.

Ms Adila Aboo, Acting Chief Director: Provincial Government Accounting, clarified the introduction of the condonation process to the Committee. She explained that irregular expenditure was an expenditure of other than authorised expenses, and which had been incurred in contravention of the required procurement legislation. On 16 May 2019, National Treasury issued Instruction 2 of 2019, along with a related internal irregular expenditure framework, to further regulate irregular expenditure for institutions subject to the Public Finance Management Act (PFMA). In July 2019, the framework was sent for legal opinion to get clarity on the legislative mandate for condonement by the Member of the Executive Council (MEC). Workshops were held with provincial departments to explain the framework. A revised legal opinion on the mandate of the MEC was received in December 2019, accompanied by a delegation of authority in terms of the officials who would be allowed to condone on behalf of the MEC. The condonation process had been outlined in Circular 27 of 2022, which was issued in August 2020 to the accounting officers and accounting authority.

See attached

Discussion

Mr D America (DA) commented that the evidence of the latest concluded financial year reflected a significant improvement of 0.5% in under-expenditure, compared to the previous financial year. He enquired about the reasons for the under-expenditure on bursaries. He wanted to understand how departments and entities were made to comply with processes dealing with irregular expenditure, and which departments were regularly found not complying with the guidelines.

Ms L Maseko (DA) observed that no monetary loss had been attached to the 531 condoned cases. She asked to what extent service delivery had been affected and not delivered to communities due to the condoned cases. She sought clarity on the motivation for condonements and the criteria for making them acceptable. She enquired about the age of the 202 condoned cases, and from which departments they had originated.

Ms N Nkondlo (ANC) sought clarity on the difference between using consultants and a panel of experts. She asked if poor planning and supply management challenges identified by the Department resulted from human resource issues. Was using consultants or external support services due to a lack of skills? Had the training provided by the Provincial Treasury (PT) yielded results to address the challenges? She requested that the condonation framework be shared with the Committee to help Members understand how eligibility for condonement was determined. She sought clarity on whether the PT guidelines triggered an assessment test, and who the final arbiter was on what needed to be done.

Ms A Cassiem (EFF) wanted to know which departments were responsible for the majority of the condonement cases, and asked why the PT had not resolved the old cases. She enquired about the breakdown in legal costs spent on officials and government departments.

The Chairperson sought clarity on whether dealing with irregular expenditure also covered unauthorised, fruitless, and wasteful expenditure, or if the latter was being dealt with in terms of a different policy.

Treasury's response

Mr Savage attributed the underspending on bursaries to some students not accepting bursaries awarded to them due to changes in the scope of their careers, which were not offered by the Department, or receiving better options from other organisations. The National Student Financial Aid Scheme (NSFAS) disruptions also played a role. The Department had an annual fixed bursary pool and did not roll over bursary money.

He explained that the condonement process was done in terms of a framework with clear guidelines, as per Circular 27 of 2020. Training was provided through extensive engagements with chief financial officers (CFOs). He confirmed that not all monetary losses were due to irregular expenditure. This aspect was covered in the financial statements as part of the condonation process.

He replied to Ms Maseko that the 202 condoned cases referred to all outstanding cases to date. The huge backlog that had accumulated before the PT was granted the authority to process the cases had been reduced.

He explained that the difference between a panel of experts and a consultant lay in the approach to procurement. A panel was needed for an ongoing series of sub-tasks to streamline the procurement process as and when required. A panel was more difficult to set up in the initial phase, but was more agile once in place. Consultants were used for particular reasons where it did not make sense for the Department to employ highly specialised skills, and when it drew on those skills only on an irregular basis. Using consultants as and when the specialised skills were needed was more effective.

He replied to Ms Nkondlo that the Department had done a root cause analysis of the reasons for poor planning. Two areas have been highlighted. Firstly, the bid specification process needed to be tightened. Management was not afforded enough time to traverse the quality assurance process successfully. Secondly, management was reminded to adhere to the timelines within the reporting system. There was sustained pressure to produce quality results despite the deadlines. Skills development and training had been conducted to equip management to ensure a regular flow of information and to deliver quality results. In some areas, the skills did exist, but in other areas, a rebuilding of skills was required. He was cautiously optimistic that the interventions had yielded results for this financial year.

He asked for clarity from the Committee on the specific datasets that were required. The PT would provide the information on an aggregate level. The detailed transactions were recorded in departmental reports. He was not in a position to respond on how much had been spent on legal fees in defence of irregular expenditure, but indicated that the figures would be contained in departmental reports.

Ms Nadia Ismail, Deputy Director-General (DDG), Fiscal and Economic Services, said the PT had three bursary platforms. The internal programme was to support staff, and the two external programmes involved collaboration with the Western Cape Education Department (WCED) and Nedbank. The Department was constantly competing to ensure that the bursaries were far more attractive than the external bursary offers.

Ms Aboo said compliance with processes in dealing with irregular expenditure was measured against the transversal standard operating procedures (SOPs), the process map and the framework. Irregular expenditure was linked to non-compliance with legislation. Non-compliance could not be attributed to a particular department or group of departments. The financial statements of respective departments would indicate the level of non-compliance. She undertook to compile and submit a consolidated departmental list of irregular expenditure, and would share the 2019 and 2023 frameworks, including the National Treasury Instructions (NTIs).

She explained that the delegation of authority in each department determined the officials in charge of conducting the condonation tests -- for example, either the internal control unit or the financial accounting unit.

She replied to the Chairperson that irregular expenditure did not include unauthorised, fruitless or wasteful expenditure.

Follow up discussion

Ms Nkondlo was interested in the chain of command, and wanted clarity on the position of the authority or official in the PT who approves condonement cases. She was concerned that the process might be abused by those unhappy with the outcome of the process. She cautioned that accountability should not be conflated as far as the responsible official becoming the referee and the player. She wanted to know if the condonation working committee (CWC) was established at the provincial level and under which directorate -- for example, the office of the CFO or the HOD. She requested a breakdown of the nature and value of condoned cases.

Mr Savage replied that the PT received condonation applications from across government departments and entities, and determined if a condonation should be granted. A committee within the PT processed the technical assessment. The governance and asset management branch did the formal processing in terms of the delegated authority, and was referred to the HOD for a decision. The PT had an established structure with clear authority, with the accounting officer as the ultimate responsible authority. Authority levels were delegated across departments, each within its own framework.

The PT followed a clear segregation of duties principle, with checks and balances to mitigate the risk of irregular activity. Procedural or compliance aspects were handled by the CFO's office with the support of the bid adjudication and bid evaluation committees. The HOD had to ensure that the process was working optimally. He was, however, mindful of supply chain risks and that unsuccessful bidders might seek to abuse the process through vexatious appeals. However, extensive case law exists on how to allow a fair process. The system was robust enough to ensure fair competitive processes aligned with the Constitution. The number and value of condoned cases would be submitted to the Committee.

Ms Aboo agreed to share information on the monetary value and nature of condoned cases. The CWC membership consisted of representatives from the PT, the budget office, the accounting unit, and the framework governance unit, with the Accountant-General as the chairperson. Further detail was covered in the framework which she undertook to forward to the Committee.

Ms Maseko asked if the system interacted with local government.

Mr Savage replied that the system did not interface with local government, and the PT did not condone the irregular expenditure of municipalities.

The Chairperson thanked the PT officials for their contribution, and allowed them to exit the meeting.

South African Association of Public Accounts Committees (SAAPAC) matters

Mr Dustin Davis, Committee Procedural Officer, proposed that the minutes of 7 February 2023 first be considered to provide context to the discussion of the SAAPAC matters. During the meeting on 7 February, some Members queried if the SAAPAC's annual membership fee of R138 000 was value for money, considering the outstanding audited financial statements. Minutes of EXCO meetings had not been forthcoming, despite repeated requests for them to be submitted.

Ms Maseko said the audited financial statements were not received since the leadership was elected in 2019. She drew attention to the fact that a new executive should have been elected. Constitutionally, the situation was not making sense, because money was being paid without the Committee knowing what it was being used for. She proposed that the invoice should not be paid until the financial statements were received.

Mr America supported Ms Maseko’s position.

The Chairperson said the Western Cape Provincial Parliament (WCPP) had always been reported as being up to date with its payment of subscription fees. He reminded Members that the annual financial statements could be presented only at the annual general meeting. However, in the meantime, the Committee might not be able to participate in the SAAPAC activities if the subscription fees were not paid.

Ms Maseko said the Committee should find out what would empower Members to engage with the SAAPAC's leadership to obtain the financial statements. The Committee needed to help solve the SAAPAC problem.

Ms Ndlovu proposed that the Committee serve a notice to the SAAPAC about the intention to withdraw, based on arguments put forward by Ms Maseko. Through payment of membership fees, the WCPP was fulfilling its obligations, but the other end of the stick from the SAAPAC appeared not to be happening. The notice should be sent with the full understanding that participation would continue, but emphasising that submitting financial statements as part of compliance and good governance.

The Chairperson concluded that the intention to withdraw the SAAPAC subscription would be communicated with the entity.

Resolutions and actions

The following resolutions were noted:

• Writing to the SAAPAC to serve notice of the decision to withhold payment of the annual subscription fee until the annual financial statements were submitted;
• Obtaining the 2019 and 2023 condonation frameworks, including all National Treasury instructions (NTIs) from the PT; and
• Ms Maseko requested a research document to be compiled about the scenarios legislators could use to act when entities did not provide financial statements.

The Chairperson thanked Members for the constructive engagement.

The meeting was adjourned.