Eastern Cape & North West 2023/24 performance: AGSA & Treasury briefing

Meeting report

The Chairperson said the Committee would receive a briefing from the Auditor-General of South Africa (AGSA) and National Treasury (NT) on the performance of provincial treasuries and its entities. This would ensure that the Committee executed its constitutional obligations of oversight and accountability of public finances. The presentations would share audit outcomes, performance, and compliance of provincial treasuries, and would prepare the Committee for the upcoming meetings with provincial treasuries.

The focus of the presentations would be on the Eastern Cape and the North West. If time allowed, the Committee had asked that the AGSA and

NT share information about other provinces. This was not the last meeting with the AGSA and National Treasury. There was R467.7m unauthorised expenditure, R2.7b irregular expenditure, and R148m fruitless and wasteful expenditure. R197m was estimated as the financial loss from 30 non-compliance and suspected fraud material irregularities identified since 2019. The financial losses were due to poor payment practices, unfair/uncompetitive procurement processes, inadequate needs analyses and project management, no/limited benefit received from money spent, and ineffective maintenance on infrastructure. There were 31 material irregularities on non-compliance and suspected fraud.

AGSA on performance of provincial treasuries and its entities

Ms Vanuja Maharaj, Head of Portfolio, AGSA, said that the presentation was detailed, but the team would highlight only the key messages. She took the Committee through the entity's mission, vision, and mandate.

Eastern Cape

Stagnation of audit outcomes

The AGSA said that in the 2023/24 financial year, there were nine clean audits, nine unqualified with findings, and three qualified with findings. All financial statements were submitted on the legislated date.

Movement in audit outcomes from the previous year

The improvements related to transport include the Mayibuye Transport Corporation and the Eastern Cape Rural Development Agency. Education and health were some of the areas that stayed unchanged. The Office of the Premier, the provincial legislature, and the areas of sport, recreation, arts, and culture were areas that regressed.

Weaknesses in performance planning and reporting

The reporting on service delivery was not credible. There was an inability to measure progress toward achieving core service delivery mandates.

The medium-term strategic framework indicators for prioritised core functions were not included for education. This included lesson plans for home language literacy in grades 1-3, and a school readiness assessment system. This had a negative impact on the 10-year-old learners enrolled in publicly funded schools to read for meaning, and access quality early childhood development services and support.

Various performance achievements reported for health, education, public works, social development, the Office of the Premier, and the Rural Development Agency were inaccurate. As a result, the targets were likely not achieved, and performance information was unreliable.

Education did not achieve its 80% targets for public ordinary schools and infrastructure delivery performance indicators. Health did not achieve 54% of its district health services performance indicators. Transport did not achieve 28% of its service delivery indicators. Human settlements did not achieve 27% of its service delivery indicators. This resulted in the non-realisation of national priorities on education, health, social and economic aspects of the lives of South Africans.

Continuing weaknesses in infrastructure project delivery

The AGSA found under-utilisation of completed projects, quality defects, no value for money, invalid variation orders and delays in project completion. Human settlements did not oversee proper contract management for a non-performing contractor. Transport executed poor monitoring, evaluation, oversight, and quality control. In education, there was a failure by a principal agent to discharge their duties. In health, there were delayed payments to the contractor and delayed action against the poor-performing contractor, as well as ongoing restrictions on the recruitment of staff.

As a result, there was non-compliance with the South African Schools Act. Non-maintenance reduced the lifespan of school/hostel buildings, resulting in ineffective, inefficient, and uneconomical use of resources, and further costs to refurbish the school sooner than required. Due to delayed service delivery, patients were being transferred to other hospitals.

Recommendations

Medical claims related to provincial financial health, benefits of saving lives, and funds should be prioritised.

The policies/processes/guidelines at schools should include initiatives that promote effective and continuous communication and create an environment and culture at the school to ensure the learner's academic success.

The information technology and systems that affected the province should be reported and monitored by the Cabinet in the Eastern Cape.

Pressure on government finances

There was R467.7m unauthorised expenditure, R2.7b irregular expenditure and R148m fruitless and wasteful expenditure. R197m was estimated as the financial loss from 30 instances of non-compliance and suspected fraud material irregularities identified since 2019. The financial losses were due to poor payment practices, unfair/uncompetitive procurement processes, inadequate needs analyses and project management, no/limited benefit received from money spent, and ineffective maintenance of infrastructure.

Material irregularities identified and status

There were 31 material irregularities involving non-compliance and suspected fraud. This resulted in 30 material financial losses of R197m, and substantial harm to public sector institutions. No actions were taken to address 97% of the matters until the AGSA issued notifications. A material irregularity could only be resolved when all possible steps had been taken to recover financial losses, remove the harm caused, address the consequences, and prevent any further losses and harm. So far, 19 of the material irregularities have been resolved, while eight appropriate actions have been taken to resolve material irregularities. Two appropriate actions were not taken, and two responses were received on notification.

Office of the Premier

There was an unqualified opinion, with material findings on performance information. This was due to the inadequate systems for some indicators that were used to collect, collate and verify information. Broadband and Microsoft services were not used effectively.

It was recommended that there be adequate oversight and coordination in the management of key information communication technology (ICT) projects that could impact service delivery in the Eastern Cape. Output-based performance reporting should continue. Proper checks and balances on the information received should be from the 12 provincial departments.

Provincial Treasury

The Provincial Treasury monitored all the financial recovery plans in the province. There was support for municipalities that had unfunded budgets. Sections 71 and 72 reports for municipalities were issued with recommendations. There was support for the monitoring of compliance with the Eskom relief programme. It was recommended that an integrated plan be developed that included the three spheres of government, timelines, and responsibilities to address the disclaimed, dysfunctional and financially distressed municipalities to see improvements.

Cooperative Governance and Traditional Affairs (COGTA)

The number of dysfunctional municipalities did not decrease. Funding and capacity remain the main factors that still lead to a lack of preparedness and readiness of disaster management. COGTA did not adopt the national framework on professionalisation of the public sector. Limited progress had been made on the implementation of the district development plans.

COGTA should define its approach to professionalisation, assess the alignment of its existing initiatives with the professionalisation framework to identify gaps and have a project management plan where responsibilities are assigned. The accounting officer should ensure that challenges and proposed support interventions designed to improve municipal performance are communicated to municipalities. In addition, the support provided to address these challenges should be intensified and directed to the issues.

Legislature

The legislature received an unqualified with findings audit opinion due to non-compliance that had to be reported. The Portfolio Committees did not implement consequence management on departments that did not respond to resolutions communicated, even after follow-ups were done. The Portfolio Committees did not always track and monitor key infrastructure projects for most of the departments that had key infrastructure projects set out in their annual performance plans.

It was recommended that management develop a system that ensures the validation and payment of invoices are done within the prescribed 30 days from receipt of the relevant invoice from the service provider to address the non-compliance matter. Portfolio Committees should follow up on the non-responsive departments in line with the requirements of the Rules of the House. Portfolio Committees were advised to improve their oversight processes in holding the departments and entities accountable for key infrastructure projects, as well as ensuring that the lived realities of all citizens were positively impacted.

Call to action

Officials should be clear on their responsibilities and the performance expected from them, as well as the consequences for transgressions and poor performance. Leadership should consistently but fairly implement the policies and procedures of the institution relating to consequence management. Transparency and accountability through clear reporting systems and oversight should be enhanced, while strengthening data management with improved technology, staff training, and using citizen feedback to improve service delivery was needed. Political and administrative leadership should enforce strict oversight and accountability measures over financial management disciplines, while streamlining and standardising procurement processes to eliminate inefficiencies and prevent potentially inflated costs.

(Please see presentation attached for further information)

North West Province

Mr Mthokozisi Sibisi, Business Unit Leader: North West, AGSA, took the Committee through the performance information for the North West.

Overall improvement in audit outcomes

The financial reporting audit outcomes in the province have improved since the last year of administration. Notably, there were two additional clean audits -- arts and legislature -- and two departments had improved from qualified audit opinions in the previous year to unqualified opinions with findings. Community Safety and Transport appointed a full-time official to manage commuter transport services. Roads and public works maintained the same consultants, and committed to leading the skills transfer process to stabilise the environment.

From 2019/20, the provincial Department of Human Settlements improved from a disclaimer audit opinion to an unqualified audit opinion in the 2023/24 financial year. Agriculture and health had also improved from qualified audit opinions to unqualified opinions in the 2023/24 financial year. The overall improvements indicated a step in the right direction for reliable financial reporting. However, compliance and performance information still required much intervention to realise significant improvements in the audit outcomes.

The overall audit outcomes for the entities in the province had regressed. The North West Development Corporation had shifted from a qualified to an adverse opinion, and GL Resort, Golden Leopard Resort, and the North West Parks and Tourism Board had moved from qualified opinions to disclaimers, while Klein Marico had moved from an unqualified to a qualified opinion. The overall regression indicated that immediate intervention and support were required for the entities, as they were not performing well. Notably, three auditees had still not submitted their annual financial statements since 2019. Provincial Treasury had made an effort to assist the auditees in submitting the financial statement, but challenges involving the business rescue practitioner had been encountered, and this had resulted in further delays in the submission.

Performance information

For the departments, the reported performance information was not valid and accurate. The reported achievements were not reliable. The key performance indicators relating to mandates were not included in the performance plans. The root causes were inadequate filing systems, lack of training on technical indicators, lack of understanding of how performance indicators should be measured, and budget constraints. As a result, service delivery targets to the public were delayed, and the accountability ecosystem could not assess performance.

There was instability in the boards of some of the entities, such as the North West Parks and Tourism Board. The GL Group also did not have internal audit units in place.

Service delivery risks

The road infrastructure was in poor condition. Despite receiving R1.2b for the year, the North West Department of Public Works had underspent by R204m. The root causes were the lack of planning, inadequate condition inspections, and inefficient procurement processes. This had negatively impacted economic activities and increased physical safety risks. It was recommended that vacancies be filled, with the establishment of an efficient procurement process and improved planning.

There were visits to three districts to assess if the scholar transport was safe and reliable. The AGSA noted that buses arrived late, there were fire extinguishers missing in the buses, and the buses were overcrowded. Poor bus conditions and overcrowding jeopardise the safety and well-being of learners, potentially leading to injuries. Delays and disruptions in transport due to late arrivals or withheld services could cause learners to miss classes, affecting their attendance and academic performance. Overall, these challenges undermine the quality of education by creating unsafe and inconsistent access to schools. It was recommended that the accounting officer appoint inspectors to conduct monthly and surprise inspections of the conditions of the buses. The accounting officer had to hold the transport providers accountable for unresolved safety issues by enforcing penalties or contract cancellation. A reporting channel for parents, teachers, and learners to report transport issues had to be established.

There was a lack of maintenance at hospitals, such as the Brits Hospital and General De La Rey Hospital. At the Brits hospital, there were non-functional light fittings, air-conditioners that were not functioning, one non-functional elevator, and damaged ceilings, hand-wash basins and doors. At the General La Rey Hospital, there was water damage to some ceilings, internal walls and doors, and the security gates were not functional. The condition of public hospital buildings was important to provide healthcare services to the community. As a result, the community could not receive the required healthcare services. It was recommended that there be regular monitoring of the infrastructure projects, regular maintenance inspections, and the accounting officer should ensure that an adequate budget was allocated for the maintenance of hospitals.

Delayed projects

The Mmabatho Nursing College project was delayed. The North West Department of Health did not adequately assess the remedial work that had to be included in the scope of works and bills of quantities before the appointment of a replacement contractor. The root cause was poor project management. This had a negative impact on the capacity to train student nurses and to achieve the proposed nursing staff-to-population ratios in the province. It was recommended that the challenges of the project be identified and closely monitored. The oversight procedures had to be strengthened.

The construction of 300 low-cost houses in the Tladistad village in the Moretele municipal area had been delayed. At the time of the audit, 102 of the 300 houses had been completed, and the contractor had left the site in December 2023. The project was supposed to be completed on 31 January 2021, but there had been an extension of 37 months, which resulted in a new completion date of 31 March 2024. As a result, 198 beneficiaries had not received their houses yet. The North West Department of Human Settlements could not honour payments to the contractors due to budget cuts experienced in November 2023. It was recommended that stronger monitoring and oversight mechanisms be implemented for larger infrastructure projects. There had to be real-time project monitoring systems in place to track the progress and financial status of critical projects.

Fiscal pressure and consequences

In the areas of public works and roads, R180m in excess was spent. The budgets were fully spent -- above 90% -- but performance targets were not achieved. Inflated fuel prices at the North West Department of Health were noted. Medico-legal claims put extra strain on the fiscus, as the claims were not budgeted for. There were no plans in place to keep the claims to a minimum. It was recommended that the North West Department of Health develop a proactive risk management and litigation strategy to minimise future claims and associated costs.

There was a slow response from the auditees in dealing with irregular expenditure and the implementation of preventative controls for incurring irregular expenditure. This was evidenced by the increase in irregular expenditure incurred, namely R37.9b in the 2023/24 financial year.

Material irregularities

There were 39 material irregularities issued. This resulted in 20 material financial losses, one misuse of material public resources, three substantial harms to the general public, and 15 substantial harms to public sector institutions. Appropriate actions were not taken to address 35% of the material irregularities that were issued.

Recommendations

Audit outcomes: There had to be reliable data collection methods, such as independent monitoring or third-party evaluations. There had to be periodic internal reviews or self-assessments for departments. It was recommended that cross-departmental forums or workshops be established to share experiences and best practices with others.

Service delivery: Cash flow management had to be improved. A robust verification process for completed work had to be implemented. There had to be a standardisation of protocol for contractor performance management.

Intervention for entities: Assistance had to be provided to entities to establish governance structures to ensure that internal controls are improved and to enable oversight structures to perform oversight roles. There had to be executive authorities to ensure stability in accounting authority positions. It was recommended that entities develop revenue enhancement and cost reduction strategies.

Material irregularities: There had to be regular monitoring of progress made to address material irregularities. The provincial departments and its entities had to account for the steps taken to address the material irregularities.

(Please see presentation attached for further information)

Ms Maharaj said the team was ready to provide information on other provinces.

The Chairperson said that time did not allow for such a briefing. She allowed National Treasury to make its presentation.

National Treasury on performance of provincial treasuries and their entities

Ms Ogalaletseng Gaarekwe, Acting Head: Intergovernmental Relations, National Treasury, said that the presentation covered all provinces. National Treasury would emphasise the North West and the Eastern Cape. The financial year had ended in February, and the provinces were expected to submit information next week. She asked that more time be given to NT in the future to have all the information. At the end of each quarter, there was a section 32 report. This report would be shared with the Committee.

Mr Michael Rammabi, Director: Provincial Budget Analysis, National Treasury, took the Committee through the presentation.

Provincial fiscal framework

The equitable share had grown by an annual average of 4.5% over the 2025 medium-term expenditure framework. The conditional grants would decline by 4.5% in 2026/27. There was minimal own revenue growth of 2.8% for the 2026/27 financial year.

Provincial own revenue-collection trends

There was a history of over-collection across provinces, including the Eastern Cape and the North West. Motor vehicle licenses were one of the biggest sources of revenue.

Own revenue enhancement strategies

Some of the strategies included the sale of non-core or unutilised state assets; licensing of private healthcare facilities; investment in the maintenance of government buildings; developing a revenue forecasting model; and exploring available donor funding options.

Provincial economic growth and job creation strategies

Eastern Cape: Some of the key economic drivers in the province were investment in economic infrastructure, critical skills and innovations, and access to finance and markets. Renewable energy and economic and social infrastructure were some of the growth priorities. The key challenges included the infrastructure backlog, crime, and high-levels of unemployment.

North West: Some of the key economic drivers were mining, manufacturing, and tourism. Releasing provincial land for tourism and investment was one of the growth priorities. The key challenges included poor road networks, ageing road infrastructure and insufficient professionals in infrastructure.

Provincial spending performance -- trends analysis

The trends showed consistent underspending of budgets across economic classifications. All the provinces had a history of underspending, except recently for KwaZulu-Natal. In the 2024/25 financial year, the Eastern Cape had spent 92.5% only of its budget. The North West had spent only 90.9% of its budget.

Compensation of employees -- trends analysis

The total compensation of employees (CoE) budget for the 2024/25 financial year was R470.4b, which represented 61% of the adjusted appropriation. Education and health accounted for the highest percentage (87%) of the budget. By 28 February, the spending on CoE had reached R432.4b (91.9%). The CoE for the Eastern Cape was 91.7%, and in the North West, 91.1%.

Infrastructure spending

R80b was budgeted for infrastructure in the 2024/25 financial year. The spending was below the February straight-line norm of 91.7%. The spending on new infrastructure was lower at 77.9%. Some of the challenges included delays in the supply chain management (SCM) processes, delays in the approvals of business plans and poor planning. Filling vacant posts, improving monitoring by clients and having governance structures, were some of the proposals. The Eastern Cape and the North West spent 87.2% of the adjusted appropriation on infrastructure.

Conditional grants

The consistent underspending and conditional grants surrenders were a concern. The conditional grants surrendered by the Eastern Cape in 2023/24 amounted to R62.7 million, and R66.6 million by the North West.

Accruals/unpaid invoices- trends analysis

As of 31 March 2024, there was R37.1b in unpaid invoices. All invoices had to be settled within 30 days unless determined otherwise in contracts. Late payments could lead to legal and operational consequences, potentially running small, medium, and micro enterprises out of business, straining relationships with service providers, and interest on payments on overdue accounts.

Audit outcomes

Provincial Department of Education: Repeat findings included non-compliance with SCM legislation and predetermined objectives. The root causes included inadequate consequences and the slow response in improving key controls and addressing risk areas. Intervention was required for oversight responsibilities. Financial and performance reporting had to be improved.

The Eastern Cape and the North West had received a qualified with findings audit report.

Provincial Department of Health: The repeat findings included non-compliance with SCM legislation, predetermined objectives, and unfavourable indicators for financial health. Inadequate consequences and slow response for improving key controls and addressing risk areas were some of the root causes. Intervention was required for human resource management, action plans and information technology governance.

The Eastern Cape Department of Health had received a qualified with findings audit report. The North West Department of Health had received an unqualified with findings audit report.

Provincial Department of Social Development: The repeat findings were related to non-compliance with SCM legislation and predetermined objectives. The root causes included inadequate consequences, slow response in improving key controls, and addressing risk areas.

The Eastern Cape and the North West had received an unqualified with findings audit report.

Provincial Department of Human Settlements: The repeat findings included non-compliance with the SCM legislation and predetermined objectives. The root causes included inadequate consequences, slow response in improving key controls and addressing risk areas. Intervention was required for oversight responsibilities. Record keeping, reporting and compliance had to be improved.

The Eastern Cape and the North West had received an unqualified with findings audit report.

Provincial Public Works, Roads, and Transport Department: The repeat findings included non-compliance with SCM legislation and predetermined objectives. The root causes included inadequate consequences, slow response in improving key controls and addressing risk areas. Financial and performance reporting had to be improved.

The Eastern Cape had received an unqualified with findings audit report. The North West had received an unqualified with findings audit report.

Public entities: The entities in the Eastern Cape received four unqualified with no findings, two unqualified with findings, and four qualified with findings audit opinions. The North West had no clean audits. There was one unqualified with findings, two adverse with findings and three disclaimed with findings audit opinions. Three audits were not finalised by the legislated date.

Provincial own revenue enhancement strategies

Eastern Cape: There would be an investment in ICT infrastructure to enhance automation. There would be a partnership with the private sector to commercialise conference facilities for revenue growth.

North West: The long-standing licence renewals and fines would be dealt with. The outstanding rental from defaulting tenants would be recovered. The auctioning of obsolete assets as well as sales of capital assets would be implemented in 2025/26. There would be a tariff review process with the other provinces.

Personnel headcounts for each province were also provided.

See presentation attached for further details

Ms Gaarekwe said that once provinces submitted draft budgets in November, National Treasury analysed, assessed, and made recommendations based on them. At the end of the first quarter of each financial year, NT met with the provinces about the issues that had been raised and made recommendations. It looks at the internal forums of the provinces. She said that there had been pressures in KwaZulu-Natal. The North West had also been under intervention at some point. However, things had improved.

Discussion

The Chairperson said that if she had the power, she would process the provinces and put them under section 100 of the Constitution. The provinces were aware that the AGSA and National Treasury brought these presentations to the Committee. It had to talk about the issue of oversight because it was important. It did not have the power to say appropriate or not, or to say that a province should not receive any money. She agreed with National Treasury about the area of invoices. On the ground, payments were being politicised. For example, someone would say not to pay an individual to make them suffer because they know that the person has been doing the job. Secondly, they would want to be paid without even going to the area where the work was supposed to be completed.

Mr J Britz (DA, Eastern Cape) said that there were recurring issues throughout all the provinces. The recommendations throughout the years had tended to have a rhythm to them. The same issues were addressed over and over again. If the Committee had to look at all the reports holistically, it would be the same in this presentation. The question that was now being raised was the way forward. While he appreciated the recommendations, there appeared to be an inability to implement the recommendations and no intent to cooperate with their implementation. Accelerated implementation of growth reforms could drive faster than projected growth in all the provinces. This was needed.

While considering the reports for wasteful, unproductive, and unauthorised expenditures, a spending review across the board may be helpful. This would help the Committee to see where the expenses lay, the reasons for the expenses, and what could be done to make those expenses efficient for service delivery. He recommended that the green economy, global warming, and information technology be considered when recommendations were made, especially for digital transformation. The report indicated problems with digital transformation. Increased private sector investments in infrastructure were needed to clear backlogs and stalled projects. Regulatory reform in the ICT sector would be required. The review of the Public Procurement Act 28 of 2024 could address the concerns of provinces.

Ms T Legwase (ANC, North West) wished that the questions were directed to the Department -- it was responsible for informing the Committee about what was happening with the recommendations. The recommendations and the improvements in the audit outcomes did not translate to what she saw on the ground. There was a video circulating where the Speaker of a municipality had doubts and made serious allegations about the reports from the AGSA. The municipality had received a report from the AGSA, but the AGSA later confirmed that it was not their report -- the font was not the same. She felt that whatever recommendations were made in that report might be overlooked on the basis that the AGSA did not want to accept it. She asked Mr Sibisi to clarify this matter because service delivery in communities made municipalities better.

Did the AGSA put timelines in place for when recommendations should be implemented? What happened when the recommendations were not implemented? What role did the AGSA or provincial treasuries play in supporting these departments or entities in improving the audit outcomes and addressing their financial health concerns? Most of these questions indicated that what happened on the ground had to be investigated.

She wished that there had been oversight in the North West. The audit outcomes may have improved, but the North West was deteriorating daily. Hospitals were being closed. The Department of Employment and Labour was not happy with what was happening in the hospitals. The facilities were becoming dilapidated, and the situation was deteriorating daily. She felt that interrogating the presentation would not do it justice. As a delegate, she wanted to see an improvement on what had been presented.

Mr J Majola (MK, KwaZulu-Natal) agreed with what the Member had said about the AGSA report. He suggested that the presentation on the other provinces should not be considered, because the picture was the same. It was a matter of figures. There would be alarming figures for irregular, unauthorised and fruitless expenditure. It was like listening to a song, because the content of the AGSA was the same. He spoke about education being in the same situation, as there was no concrete plan to bring education up from the unqualified with no findings audit outcome. It might even stay the same for three to four financial years.

He directed a question to National Treasury about the invoices. Mr Sibisi had mentioned during the presentation about a directive to provinces, where there should be a priority of servicing the R37b. What impact would this have on the commitments for the current year? He thought that the unpaid invoices were from a previous project or other commitments. R37b was a huge amount to kick-start a new financial year, but one would be committed to something from the previous years.

The provincial fiscal framework had different categories of revenue. There were the equitable shares, conditional grants, and revenue. Besides the grant funding, what percentage was the provinces contributing to the revenue section of their fiscus? There had been a meeting with COGTA last week, where the provinces were giving grants to the municipalities. The municipalities contributed less than 50% of their revenue towards collections. There seemed to be a problem in the concentrated areas, where both the provinces and municipalities could not raise revenue. This shifted the burden to National Treasury.

He asked about the additional powers that the AGSA had been given. If there was unauthorised or irregular expenditure, it was important to understand its nature. If the AGSA dug deeper into how the irregular expenditure occurred, it would show that someone was using the terminology, but it was fraud. He acknowledged that the AGSA was not just auditing and did not understand the nature of irregular or fruitless expenditure. However, he asked for clarity on the matter.

Mr P Swart (DA, Western Cape) saw clean audits in some departments and regression in entities like the Golden Leopard Resorts in the North West. What measures would National Treasury implement to support the provincial entities that had regressed? What consequences had been implemented for the repeated disclaimers and non-submissions, like at North West Transport Investments (NTI)?

Slide 9 provided performance information on education. The medium term strategic framework (MTSF) referred to foundational literacy and the committed plans, so why were core indicators like the national reading plan, school readiness plan and readiness assessment in education excluded from the planning documents? What oversight was being applied to ensure that these were integrated into the future annual performance plans? Provinces were experiencing consistent underspending, particularly on capital expenditure and infrastructure. This was not a good thing. There should always be an emphasis on capex, infrastructure projects, job creation and development. What specific measures would the National Treasury enforce to prevent underexpenditure of budgets, especially for infrastructure in high-need provinces like the Eastern Cape?

The presentation referred to its own revenue collection. However, provinces had room to enhance their own revenue, particularly through licensing reforms and property rentals. What mechanisms existed to hold provincial departments accountable for not collecting owed revenue, such as hospital fees and state rentals?

He asked about National Treasury imposing penalties and performance-based incentives. Slide 8 of the Eastern Cape presentation indicated that education and health targets were not achieved. Despite full budget expenditure, infrastructure projects were delayed by up to nine years, with no consequences. What would the AGSA and National Treasury recommend for the repeated delays and poor quality in infrastructure delivery, especially in education and health?

Ms M Siwisa (EFF, Northern Cape) said the people who were supposed to hear these questions were not present. Some provinces were underspending and returning the money. What were the reasons for the provinces to do that? In the Northern Cape, there were grants for human settlements, but the province was struggling to provide people with houses. Funds were being returned which could have been utilised somewhere else. This was the reason it was important to have these entities and people from the provinces present.

When North West was handed over in 1994 by Mahikeng, it was one of the best provinces. People would go on tours in the North West to remind themselves how beautiful Mahikeng was. The airport had been closed down. The studio had been closed down. The roads were a mess. On Facebook, people talked about the floods and asked for boats to move around. This was not the first flood. The Committee would sit here and talk, but it would be talking to the wrong people. The AGSA went out to do the audit, gave the Committee the report, and made recommendations. The Committee had to follow up with the Premiers and the Members of the Executive Councils (MECs) on whether the recommendations were implemented. If not, it must determine the reasons why the recommendations were not implemented. The Committee should be able to take decisive decision and make its recommendations. The people in the provinces were not doing what they were supposed to do. The Provincial and National Treasuries could put in the effort, but if the people did not do what they were supposed to do, the Committee had to sit down and make a recommendation to the President to put a province under administration. There had been an improvement, but it was not enough.

How could the Eastern Cape spend so much money? There had been R339.9m in medical claims paid out, which meant that there had been negligence. Was there no one available to consult a lawyer to sue the hospital? There could have been negligence by the doctors, nurses or staff. If documents were missing, it meant that the hospital could not even prove that it was not its negligence, or that it was innocent. There was a serious problem in the Eastern Cape. She referred to a case in the Eastern Cape where a child had been raped on school premises, which had brought to light two more cases in the same area. How should one deal with the Office of the Premier that did not submit documents? How was the Premier going to monitor the issue of innocence if it could not do what needed to be done? The Committee could make comments, but the people supposed to hear it were not here. The Committee should take a decision to engage with these people in a physical meeting.

She applauded the AGSA and National Treasury for the splendid job that they did. The Committee had received the reports, and it was up to the Committee to decide what to do with them. She did not have much to say, but would wait for the Premiers and the MECs to brief the Committee on what it was doing and if the recommendations were being implemented. If these recommendations were not implemented, the same team would audit at the end of the financial year, and there would be a 0.00005% improvement, which was nothing. There was no guarantee that money would not be returned at the end of the current financial year. The Premiers and MECs should come to the Committee to ensure that no money was returned. The Eastern Cape had to get its house in order. There should not be a Premier who was also featured in the report. It would mean that the Eastern Cape was collapsing.

The Chairperson said that the Committee must be clear on the oversight suggested by Ms Siwisa. If the Committee had to go to the province, these people should not be present because they would do the same. The AGSA had gone to the province and completed the audit. However, Members were saying that the audit did not address the actual situation on the ground. The Committee should go there with the information it had, or call these people when it was in the province. The Committee could say that in the audit, this was what had transpired and the AGSA had said this, but the reality looked different.

Ms S Nxumalo (ANC, Mpumalanga) said that the presentations were well understood. A lot of discrepancies had been found in the Eastern Cape and the North West. These discrepancies related to supply chain management, irregular expenditure, service delivery, delays of nine years in project completion, pending medical claims and disclaimers. Whenever there was a disclaimer audit opinion, it meant that the AGSA had not seen anything. She compared this to only seeing smoke, and she found it disturbing.

She agreed with Ms Siwisa about the underspending of provinces, and compared it to a criminal offence. If money were provided, but it was not spent, why were people going to work in that province? The people in the province were failing to do the actual work. There were unpaid invoices from the last financial year and the beginning of the current financial year. However, money was being given to these provinces. She agreed that the Committee should visit these provinces, inform the Premier of the issues, and ask what programmes were in place to resolve the issues. There had to be timelines attached to those programmes for the Committee to check the action, based on that programme. The people that the Committee was supposed to be talking to were not present.

The Committee should first go to the North West. Some posters stated that there was no airport in the Northwest. This was disturbing. She emphasised the importance of meeting with the Premier and discussing plans with timelines. It was disturbing to see that a project was not completed after nine years. This was a disgrace to the people. People who were waiting for the project had ended up dying, and the project was still unfinished. She compared the Premiers with a Chief Executive Officer (CEO) -- they had to know everything happening in their province. The Premier had to have plans in place to assist the province moving forward.

Responses

AGSA

Ms Maharaj said that in the accountability ecosystem, all the role players were put together that contributed to positive outcomes, effective service delivery, and an effective control environment. Before recommendations were made, the AGSA would have conversations with the accounting officer, who would be the head of the department (HOD) or the CEO of entities, on their respective roles and what should be done. When the recommendations were made, they would be familiar because they were aligned with the roles and responsibilities of what the HOD or CEO should be doing in the first place. The accounting officers should be occupying their time with the mandate and the roles and responsibilities of the position. The senior management should be supporting the accounting officers in the plans, budget, service delivery, monitoring and strengthening of the controlled environment. These were the things that the accounting officers should occupy their time with. What else could these accounting officers be doing?

There was also the Internal Audit and Audit Committee to assist. Payments were made for the internal audit. In the audit committee, there were capabilities coming from the outside to assist. Certain questions were then asked. What was being done? Were the terms of reference fulfilled? Was support provided to strengthen the control environment? The AGSA spent a lot of time understanding these aspects before making recommendations that were in alignment with them. The accounting officers were not asked to do anything other than what their roles and responsibilities required. She agreed that there should be timeframes included. There were signed commitments. When the AGSA made recommendations, the accounting officers had to commit to the AGSA to change the current situation.

The processes did not end with the audit outcome. The AGSA did continuous visits with the role players to ensure that the recommendations and commitments were progressing. It was a continuation that would lead to the end of the audit period. The AGSA would go out to the provinces to determine what had to be done to change the situation. It was important for the recommendations to be there, and to have signed commitments. This would assist with seeing what needed to be done, and by whom, to change the situation going forward. If there were no consequences for poor controls, non-compliance and continuous progression, people would continue to do exactly that. The information on the improvement of the control environment and culture within the departments and entities was important.

There was a slide in the presentation that indicated how many material irregularities had been issued. The material irregularities were separated into whether they resulted in a material loss, or were related to fraud or harm within the institution or to citizens. In each province, the Committee would be able to see which material irregularities had been issued, what actions had been taken, and if the losses had been recovered. The critical point was to understand if the control environment had improved. If material irregularities were issued, it meant that everyone in the accountability ecosystem had failed to do their work. The recommendations could end in a referral or a certificate of debt. This meant that the issues had been earmarked. The material irregularity was detected, but there had been a failure to do the work in the first place.

The AGSA addressed the issues about indicators being excluded in education. It was difficult to explain, but someone along the line would not have done what he was supposed to do. The AGSA came in as external auditors. It audited the frameworks that guided the department, and ended up identifying something that had been missed. There was a whole department that had missed that specific objective. The indicators were missed by the person who drafted the performance report, the reviewer and the political oversight who was responsible for the political delivery. Many people in the value chain had not done what they were supposed to have done.

There was a tendency for the audit process to identify things such as material misstatements, excluding indicators and information that was not reported on. There was a failure in the system. This was the reason that the presentations always included the accountability ecosystem. A whole system was involved, starting from the officials to senior management, and eventually to the political leadership. At all levels, the AGSA interacted with and influenced those role players to ensure that they were doing what they were supposed to. The accounting officers were the most central figures in the environment. The only person who could prod the accounting officer to act was the political leadership. If people were not doing what they were supposed to, it led to these situations. It was an unfortunate issue, but it was a trend that the auditors would pick up.

There was an ongoing project for nine years, which was a classic case of poor project management. It was a housing project in Ingquza Hill. It was meant to construct 500 houses. The initial contractor got in and saw that he could not deliver. The contractor had abandoned the site, and it had taken some time to find a replacement. A new contractor had come in, built a few houses, and abandoned the site. There should have been a supply chain process to ensure that the people who were appointed did their job. It would have shown that service delivery was not taking place. Once the contractor abandoned the site, they had already paid a lot of money. This money would most likely not be recovered. A budget for the project had to be found elsewhere. When the tender went out, the costs had escalated. The costs kept escalating. The whole housing delivery had been lagging behind.

There were a lot of variations orders that happened in the infrastructure projects. It may have been planned to complete a project with a particular budget, but the procurement process had not worked properly, and all of a sudden, the contractor would ask for more money. There may be other factors that were not considered that escalated the cost of the project. This meant that the project was not moving towards completion. There were a lot of issues in procurement and contract management. It was important to start looking at the capacity within departments to manage projects. There were times when consultants were appointed. The question was whether these consultants were being held to account. This was one of the weaknesses in the Eastern Cape, and it needed close attention. The AGSA had reported these issues throughout the administration.

Ms Sibisi reflected on the issue of the video clip going around. The comments coming from the Speaker of Mahikeng had been unfortunate. It was unfortunate that no evidence had been provided. There were many processes that the audit went through before the audit opinion was issued. For example, the Emfuleni Ratepayers' Association (ERPA), as an institution, had done a quality review. Before an audit report was issued, people outside the organisation would do a quality review of the audit report. This was called a pre-issuance. This specific report had gone through that process. There were about three layers involved. The technical unit did a proactive review before the audit report was issued. There was a seasoned person outside who did the pre-issuance review on that. A lot was involved in the process before the audit report was issued. This assisted in ensuring that the report complied with international standards and auditing standards. This was one aspect of the quality of the reports.

Secondly, internally there was a dispute resolution which had been socialised. If any of the stakeholders were unhappy with something, a complaint could be lodged, and the matter could be taken forward. In the video clip, a colleague reiterated what process had to be followed in that regard. This was a process that was known. He had said that the provision of evidence of what was being said in that video was critical. The AGSA had been trying to secure a meeting with the Speaker to understand where the comments came from and the unfortunate statements about the organisation.

Once complaints were lodged, there was an internal process to determine if an investigation had been done. There was a thorough and detailed process that happened internally. The AGSA was expected to comply with the International Code of Ethics, the professional body itself, and that of the organisation. The AGSA dealt with such matters seriously if they were not aligned with those codes of ethics. The AGSA had sought a meeting with the Speaker, but had not been able to secure a meeting.

There had been a misrepresentation of what had happened. There had been a particular finding included in the audit report, which had gone to the council. There was a conversation between the administration and the Speaker on that finding. The AGSA was dealing with the matter, and the findings would also be in the audit report. The AGSA was not able to comment on the conversation that had happened between the administration and the Speaker. It would not have been part of the discussion, and would not be able to comment on that.

The allegation that the AGSA team had distanced itself from the audit report was untrue. The tabling of the reports had happened on 30 January. On 29 January, Mr Sibisi had met with the leaders of the municipalities, and the Executive Mayor, Speaker and the Municipal Managers had been part of the meeting. The following day, the audit reports were tabled. Nothing was raised as a concern in the meeting. There was a robust discussion. If one looked at the Mahikeng report, there had been some regression, from two findings to nine findings. This had caused some unhappiness. The Mahikeng report was worse, compared to last year or the year before that. There was an insinuation that the report was better than the previous year, and that the report was not a true reflection of what had transpired. He did not want to venture into the space of what might be happening within the municipality, because he did not know. A letter had been received from the Executive Mayor stating that it wanted to distance itself from the utterances of the Speaker and the Council. This letter has been shared internally. This did not mean that the AGSA could not have a meeting with the Speaker to understand the basis of this matter, which was serious.

National Treasury

Ms Gaarekwe addressed the accruals on paid invoices. At the end of the financial year, there was underspending by some of the provinces. Where there were commitments, the conditional grants were rolled over, and they would be able to pay for the accruals. The unpaid invoices from the health department were 58% of the accruals. Some of the invoices were from the 2023/24 financial year, which had an impact on the financial year that had recently ended. This would have an impact on the current financial year. In the 2024/25 financial year, the invoice for the previous year gets paid with the new budget.

During October-November, the medical budget had been around 80% spent. At that level, the funding for medicines was running out. There had been over-commitments on these items. She was not trying to make excuses, but health services were demand-driven. An announcement was made by the Minister that there would be funding for the health sector. Some challenges required funding, particularly for goods and services. During December, the money would be running out. The health sector would then still order medicines and other items needed for service delivery, but would not pay. There would be calls or emails from the service providers for non-payment. National Treasury would, in that case, follow up with the Provincial Treasury to ask what was going on. The same trend might happen in the current financial year due to the invoices for the last quarter of the previous financial year.

Some provinces were doing well with invoices. In Mpumalanga, most of the invoices were paid within 30 days. In Gauteng, the invoices were paid after 30 days. Some provinces were trying their best. It was a big challenge, and National Treasury was working with the Provincial Treasuries on how best to support the sector.

She agreed with Mr Britz on the acceleration of the growth reforms. The green economy and digital transformation were important for the country. The Minister had made a point that spending reviews had been done since 2013. A number of spending reviews have been done for provinces at the national government level. It was always best to have a programme. If the focus was on scholar transport, it was easier to see who was doing what and what was a good practice. It had been done at the national level.

The provinces had been trained so that Provincial Treasuries could do the spending reviews themselves. A number of spending reviews had been done, for example, on education. These reviews were done by the national government or by the provinces themselves. During engagements with the Provincial Treasuries, the issue of the implementation of recommendations was raised. If there were ways to be efficient, the recommendations had to be implemented.

The municipalities had more revenue powers than the provinces. For example, the municipalities' budgets were R650b, and the national trust was only R176.8b. This meant that 60% was their own revenue, but they could do better. There were leakages in the system. She suggested that the Committee could raise this point if it met with the Premiers, especially around oversight on how the money was spent. The provincial government was given a mandate to ensure that the annual performance plans were implemented.

It was important that the issue of money spent versus service delivery was dealt with. There were measures in place to reduce the continuous underspending. There was a stoppage and relocation of the conditional grants. This was something that the institutions had resisted, because they did not like it. This had been done at both the provincial and local government levels. National Treasury looked at the national departments overseeing those functions and where the provincial departments were underspending or not performing. For example, the Human Settlements Development grant (HSDG) was stopped in a number of provinces and was given to those who were accelerating, like Mpumalanga and Limpopo. In the case of education, money was given to the Free State. This was done to ensure that not a lot of money was sent back to the national government. If provinces were doing well, money would be relocated to the provinces that were not doing well. The fact that money was taken away from those provinces did not mean that the needs went away -- they were still there. People had to plan better and implement projects better.

She addressed the R92 000 that had been returned. If it was from the equitable share, the money stayed in the province. It was provincial revenue. If the money was not committed, like conditional grants, it would not roll over. This meant that the money had to be returned. The R12b that had been spoken about for a number of years was mainly on conditional grants. The R92 000 could be allocated back if there were pressures in the province for education. It did not have to be allocated to the Premier. If it was provincial, it would stay within the province.

Medical claims have been a big issue. They were a big liability. The amount had been reduced over the years. The provinces that tended to pay a lot of money were the Eastern Cape, Gauteng, and KwaZulu-Natal. These provinces had the biggest liabilities of any of the provinces. The provinces had been working within the sector to ensure that the payments were minimised. There had been investigations by the Special Investigating Unit (SIU) because of collusion. Some lawyers did not pay the claims, and kept the money. There were a lot of corrupt activities happening in that space. There were issues with the electronic record-keeping system. There had been issues about whether the officials were stealing the files, and about ensuring that the cases were defended. She hoped that if the State Liability Amendment Bill was passed, it would reduce the issues around the medical claims.

Mr Rammabi said that a big chunk of the revenue came from the equitable share and conditional grants. This contributed to between 95-97% of what the provinces were getting. The reason for this was because the provinces existed to deliver concurrent functions, largely on the national mandate. The provinces had limited revenue-raising capabilities. The biggest revenue source for provinces was motor vehicle licensing fees. The Western Cape and Gauteng were raising about 5% of their own revenue. According to the country's vehicle population, most of the motorists were in those two provinces. Other provinces, on average, raised about 3% of their own revenue.

He addressed the issue of provinces not collecting their own revenue and what mechanisms could be put in place to ensure that the revenue was collected. If any departments were going to under-collect, it would automatically affect the provincial fiscal framework. Section 39 of the Public Finance Management Act (PFMA) stated that if there were any impending under-collections, the department must inform the relevant executive authority and the Provincial Treasury about this. It was up to the Provincial Treasury to ensure that it was enforced. Part of the enforcement could include penalties in the allocations. If the departments over-collected, it should be incentivised. He described it as sharing both the pain and the gain in the process.

A lot of work had been done to support the provinces. National Treasury had worked with the Construction Industry Development Board (CIDB) on the framework for infrastructure procurement and delivery management. There was an infrastructure delivery improvement programme, and assistance with capability building in the provinces. Over time, officials must take over and do the work that they were paid to do. Despite all the support, there were still questions about what could be done. He suggested that forensic investigations may assist with the process.

Chairpersons' comments

The Chairperson asked if it was possible for a politician in any institution, be it a municipality or a department, to buy an audit report.

Ms Maharaj responded that it was not possible.

The Chairperson said that if National Treasury saw that a province was not spending money, would it be possible to connive with another province to get that money and give it to them?

Ms Gaarekwe said it was not possible.

The Chairperson said that National Treasury, as well as Members of Parliament, were complaining about what was happening on the ground. The Committee was now talking about oversight. Anything could happen. The people on the ground were talking. If there was supposed to be a stadium, but on the ground, there was no stadium, why was the audit clean? These were some of the issues that had been raised, involving the names of the AGSA and National Treasury. People were saying that National Treasury was conniving with a province by taking money from another province. There was feedback that a plan was still being drafted on how best to utilise the money. This was what the Chairperson was trying to say. Since there was a report coming from the provinces and municipalities, it had to be borne in mind that these people were very critical.

The Committee was happy with the insights given by National Treasury and the AGSA. In the next meeting, the provinces would be invited to come to the Committee. This would give the AGSA and National Treasury the chance to inform the provinces that the audits had been done in the manner that they were supposed to have been.

Committee minutes

Mr Britz said that the minutes were circulated last year, this year, and again recently. He made two proposals. In the future, the minutes of the previous meeting should be considered and adopted at the next meeting. There was ample time to peruse the minutes. The second proposal was to adopt the minutes one by one, as they were circulated.

The Committee considered the minutes of previous meetings.

The meeting was adjourned.