Public Hearings on the Division of Revenue 2005/06: Health and Housing Allocation Spending

NCOP Finance

06 March 2005
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Meeting report

SELECT COMMITTEE ON FINANCE

SELECT COMMITTEE ON FINANCE
7 March 2005
PUBLIC HEARINGS ON THE DIVISION OF REVENUE 2005/06: HEALTH AND HOUSING ALLOCATION SPENDING
Chairperson: Mr T Ralane (Free State)

Documents handed out:
Presentation by the Department of Health
Presentation by the National Department of Housing

SUMMARY
The Committee heard presentations by the Department of Health (DOH) on the six Conditional Grant programmes currently being run by the Department. The programmes, the monitoring mechanisms and the reporting requirements were described, and figures on spending and MTEF allocations were presented for each programme. Questions were asked on the under-spending, linked to stopping or delaying transfer of funds, on problems experienced with small grants, and on delivery by the Department of systems and procedures. The question of monitoring by the Department, nationally or provincially, or within the cluster of social departments, was raised, and it was agreed that capacity was a problem, which needed to be constantly addressed. The Department was asked to give some further reports to the Committee.

The Committee also heard a presentation from the National Department of Housing which focused on the two conditional grants currently administered by the Department. Statistics on current and past performance, by province, were given. The plans to accredit municipalities to administer their own housing projects were presented and discussed. Questions were raised on the readiness of the Municipalities, on the monitoring that would be carried out, on quality issues and capacity problems. The over and underspending by Provinces was explained.

The meeting adjourned for further presentations by other Departments. No vote was taken.

MINUTES
Presentation by the Department of Health
Mr Gerrit Muller, (Chief Financial Officer,DOH) reported that presentation updated previous figures and was based on data presented by the Provinces as at 31 January 2005.

The Department currently administered six Conditional Grants. A comprehensive review of all conditional grants – and the grant process would be undertaken with a view to restructuring.

Mr Muller gave a short presentation on each grant and presented graphs of spending patterns by Province and the 2005 MTEF allocations. In brief, the grants covered were:

1) National Tertiary Services Grant. This was intended to fund national tertiary services in 27 hospitals to ensure equitable access to basic tertiary health services. The allocation criteria were based upon the 2001 costings, phased in over five years, and the costs were based on service delivery levels. If a Province did not perform to expected levels, the funding could be adjusted downwards. Monitoring was carried out by way of quarterly reports, via the District Hospital Information System. Mr Muller pointed to some underspending and clarified that this had arisen as a bookkeeping discrepancy, as journal entries for expenditure were made after the activities had taken place. The Department was trying to introduce a real time system to remedy these shortcomings.
2) Health Professional Training and Development Grant: The purpose of this grant was to fund service costs of training health professionals, enabling a shift of teaching from central to regional hospitals, and to develop and recruit medical staff in under-serviced provinces. The allocation was done by way of a specified amount to teaching, divided between the five provinces with medical schools, with 10% being allocated to provinces without medical schools. Target allocations per province were calculated over a five-year period. The grants were monitored by bi-annual reports by the Provinces, covering student and placement numbers, specialization and teaching infrastructure expansion.
3) Comprehensive HIV and Aids Grant: This would enable development of an effective response by way of various programmes, supporting the National Operational Plan for comprehensive treatment and care of patients with HIV related illness. The allocation was based on prevalence, as determined by a number of statistics. It was monitored by quarterly reports on output, liaison and technical support by members of the National Department of Health and meetings of the Steering Committee. Spending in these areas was slow. Mr Muller stated that some transfers had been delayed until acceptable explanations had been given.
4) Hospital Revitalisation Grant:: This was intended to transform and modernize the hospital equipment and infrastructure in order to deliver modern, equitable and sustainable services. It was Project-based, with numbers of projects set by the Department and the Treasury. It was monitored by quarterly reports on monitoring modules, by monthly reports to Treasury, and quarterly project implementation reports to the Department. The spending had been slow in seven provinces. KwaZulu Natal had effected a refund and a request for rollover in to the 2005/6 and 2006/7 periods. North West was to return funds before the end March. Gauteng would utilize a surplus for the Pretoria Academic Hospital. Transfers to three provinces had been delayed.
5) Integrated Nutritional Programme Grant: This had implemented activities aimed at improving nutrition in South Africa. It had previously been a school programme, but was then transferred to the Department of Education, with the remnants of the programme administered by the Provinces. It would be phased out over the 2005/6 financial years, and during this time nutritional management was to be institutionalised in the Provinces. It was allocated in line with the 1996 report on the Poverty Gap, and anthropometric indicators for 2000. . It was monitored by quarterly reports by Provinces on progress, monthly reports on finances, and regular monitoring and technical support visits and formal assessments by the National Office.
6) Hospital Management and Quality Improvement Grant: This was aimed at transforming hospital management and improving the quality of care. It went hand-in-hand with the Hospital Revitalisation Grant It was project-based in order to achieve hospital management transformation within an agreed period. Monitoring was by was of annual and quarterly reports on the monitoring models and monthly reports to Treasury on financial aspects. Quarterly reports on project implementation and expenditure were made to the Department. Transfer of some of the funds had been delayed to six provinces.

Mr Muller reported that in general the Division of Revenue Bill (B8B) did allow the National Treasury to monitor and implement plans so that part of the costs of the grant could be used to set up delivery units within the chain. There was little point in funds being allocated without supporting funds to monitor and implement the plans.

Discussion
Mr M Robertson (ANC) stated that he was particularly concerned about areas of the Eastern Cape, citing problems with hospital administration in Elliott, and lack of mortuary space, despite numerous requests for enlargement, in Lady Grey. He asked whether the monitoring was truly effective and whether the prescribed reports were indeed received.

Dr Thabo Sibeko (Chief Director: Hospital Services, DOH) replied that the areas mentioned did not fall within the revitalization programme but that he would investigate these issues. Mr Miller (DOH) added that a further conditional grant to fund mortuaries was presently under consideration.

Over and under spending: stopping of allocations or delay in transferring
Mr D Botha (ANC) commented that the December report had indicated that Limpopo Province had spent less than 40% of its budget, whereas the new figures, only one month later, indicated a spending of 64%. He queried how the spending could rise so dramatically in such a short period. He further asked what process was implemented to reach a decision that allocations should be stopped, in particular whether section 216 of the Constitution was observed.

The Chairperson asked for clarity why spending had apparently improved after the Portfolio Committee meeting.

Dr Sibeko (DOH) replied that there were lengthy reports available on the monitoring and evaluation of hospital performance, which differed in the Provinces. Some Provinces had problems with their tendering processes, which had delayed building on projects. Others had to journalise costs after delivery. Hence the statistics were sometimes misleading, as in fact there was no sudden effort made, rather that the spending was only reflected in this period.

Dr K Chetty (DOH) also clarified that the "target" for treatment was perhaps a misnomer. This figure was in fact an estimate of how many patients the hospital was likely to see. Health professionals would first look to preventative therapy (such as a change in diet, exercise regimens etc) before submitting a patient to long-term treatment by way of drugs or surgery. Access was therefore increased but the numbers "treated" at the hospital would be reduced, as, wherever possible, treatment would be avoided by patients being assisted in other ways.

Mr Muller (DOH) added that in regard to Limpopo, the MEC for Health in the Limpopo Province had been present at some meetings where underspending was discussed, and these meetings had given rise to improved awareness and checking of data, which had probably contributed to the improved performance in Limpopo. He clarified that last year there had been a breakdown in the interface of the MEDSA system for purchasing of medicines from the depots, and that expenditure over this period was only able to be done by manual journal vouchers in December and January, although the entries covered previous months.

Rollovers and Small Grants
Mr E Sogoni (ANC) asked for clarity on why some of the Provinces were doing a rollover - in particular whether they could not spend, or whether the funding was too small to administer properly. He asked if there had been compliance with the PFMA rules for rollover. He asked why very small grants were not integrated into other provincial grants. He queried what was being done about Provinces who under performed.

Dr T Sibeko (DOH) replied that the conditional grants ranged from R112m to R4bn and the costs of monitoring were obviously related to the size of the grant. Some Provinces had found it was easier to spend part of the equitable share, rather than part of the conditional grant funding. He conceded that some of the underspending had therefore arisen from the administrative burden. He reminded Members that all grants were being assessed.

He reported that from the start of the financial year the provinces must submit business plans, including a cash-flow, and that if these conditions were not met, funding would be withheld, but that Provinces would be informed of the withholding and the reasons. Some Provinces would receive a portion, pending further proof of performance. Having said that, however, he pointed out that in some Provinces, transfers had been made despite underspending, because the Department’s monitoring team had discussed performance with the Province and was satisfied that the business plans were sound.

On the question of rollovers Dr Sibeko reported that the PFMA did allow for rollover when expenditure had been committed, even if it had not actually been paid in that financial period.

Delivery by the Department: systems and procedures

The Chairperson asked for assurance that the Department was ready to deliver and whether there was a structured system to address the problem of under-spending. He also asked for reassurance that the Department was able to contribute to reducing the costs of "doing government business" through improvements to the tender system and resolution of disputes. He queried whether the Department could handle late submission of business plans, whether the Department had the capacity to assist Provinces with of good and accurate data submission, and whether they could address improvement of business plans. He asked for reassurance that the Department was not duplicating payments in tenders.

Dr K Chetty (DOH) replied that the Department was ready to deliver. Each Province had already received instruction on each conditional grant. The Health Professions Training and Development Grant, and the Hospital Management and Quality Improvement Grant were the two main areas of under-spending and both had been addressed to find the causes of weakness. Under-spending on the Hospital Revitalisation Grant had also been raised, where appropriate, and funds had been withheld where no logical explanation was given. There was indeed an active process on monitoring.

Dr Chetty stated that the "cost of doing government business" was being addressed, and the Department remained mindful of the need to avoid huge bureaucracies. Business plans were pursued. The Department looked constantly to improve the quality of data, checking it where possible against other sources. It tried to work actively with the Provinces so that the data could also be used to plan for the next ten years

Monitoring: The Cluster of programmes and monitoring within the Department
The Chairperson asked how various programmes were monitored across the departments in the social cluster.

Dr K Chetty (DOH) replied that the Director General met regularly with cabinet when some of the integrated issues were discussed. There were queries around the division of the equitable share and a perception that health and education were being squeezed by social development grants. The health share had decreased because the issue of poverty spending was being addressed. She reiterated that the Department would be undertaking a review of all conditional grants. The Department would revise its budget bids and make further applications to Treasury where projects had not received funding.

Monitoring had been discussed with SCOPA, particularly whether the monitoring role should be carried out only by the national departments, or be part of co-operative governance. Certainly, the role of the national department would be very stringent. It would be looking at over and under spending and had the capacity to perform site visits. In addition, there was a programme under the National Integrated Plan, where Social Development, Health and Education would all monitor their parts of the integrated plans, which were mapped according to districts.

Dr Chetty said that some of the conditions imposed under the Division of Revenue Bill were difficult to meet, because of the administrative burden, and interpretation had been problematic, particularly the issue of censuring the smaller provinces who had not complied. She reiterated that business plans were required.

The Chairperson raised the integration issues, and pointed out that HIV and Aids Life Skills programmes were run by Education, with a view to enabling an effective response to the problems. He queried how far integration was carried and how many school learners who had benefited from the Department of Education’s programme could be slotted into the system of home based care.

On the perception of education and health being "squeezed" by social grants, he asked what kind of tradeoff happened at the Provinces.

Dr T Sibeko (DOH) responded that the social cluster of Departments had committees, which tried to plan and define specific functional and competencies for each department. They had developed a school to home-care to community level programme and relied on the communities to assist with the integration process themselves. The Chairperson asked that the Department report back to the Committee on the numbers trained and whether there had been value for money.

On the question of trade-offs, Dr N Xundu (Chief Director, HIV, Aids, TB, and STD, Department of Health) replied that no "squeeze" had occurred. Certainly the conditional grants had been evaluated against the priority programmes but they were not affected by the equitable share.

The Chairperson asked whether there was a formula to disburse conditional grants, and whether it was focussed specifically on measurable objectives. He asked whether they had studied formulas used by the Social Development and Education.

Dr Xundu replied that they had not been actively involved in this but would report back.

Capacity Problems
The Chairperson asked what formula had been used in disbursing on the HIV and AIDS programme

Dr N Xundu (DOH) replied that a number of criteria were used but the biggest problem was that of capacity in implementing the programmes. There was also an HIV / AIDS cluster and the Conditional Grant Management Unit had put together business plans to reflect the capacity of each Province to implement programmes.

Mr E Sogoni asked what measures had been taken by the Department to address capacity problems. Dr K Chetty replied that building capacity was an ongoing process and the Department was looking to what skills were needed and the quantity of staff required, without wanting to build a huge bureaucratic structure. The Department was mindful of the need to attract professions to the public health sector

General Summary
Dr Chetty reported that there were problems and challenges in administering the conditional grants. Stopping of grants would have a huge effect on service delivery, transformation, and reduction of inequity. The Department recognised that some provinces were too dependent on Gauteng and had therefore attempted to build up their capacity and infrastructure so as to attract specialists back to those provinces.

In conclusion, Dr Chetty admitted that there had been problems with the conditional grants, that the system would be coming under review at national and provincial levels. In the meantime, resources needed to be addressed. The Department would be able to undertake an in-depth assessment of the grants, which would appear also in the next Annual Report of the Department.

Dr Sibeko added that a number of departments had complained about difficulties with the Department of Public Works which had affected their performance. The Chairperson asked for written submissions on the constraints on procurements and suggested that representatives of the Department be present at the meeting on 8 March when the negotiating mandate would be finalised.

Presentation by the National Department of Housing
Mr M Nabantu (Deputy Director General: National Department of Housing) reported that his Department administered two conditional grants in the 2005/06 financial year, as follows:

  1. The Integrated Housing and Human Settlement Development Grant (Integrated Grant), whose objectives were to finance the national Housing programmes, to provide and maintain homes with access to social and economic amenities, and progressively to eradicate informal settlements so that they should be formalised by 2014 and eradicated by 2020. Elements funded under this programme included social and economic amenity, land acquisition, operational expenditure to support the capital expenditure and consolidation subsidy, and a determination which traditional dwellings constituted "adequate shelter". The programme also provided for institutional subsidies, provision of interim facilities, an emergency housing needs programme (resulting from the Grootboom case), and facilitation of credit by banks.
  2. The Human Settlement Redevelopment Grant (HSRG)– which was in the process of being phased out – had facilitated the process of housing delivery by supporting sustainable settlements and more efficient towns and cities. It was introduced as a pilot programme, growing from R20m to over R100m per annum. There were currently 156 projects approved, which should be completed during 2005/06.

    Provincial allocations were made according to a formula determined by MinMec, approved by Cabinet. They were currently based on the 2001 census figures and provided for weighting along certain predetermined categories. Monitoring was performed in accordance with the Division of Revenue Act (DORA) on a monthly basis, and the Department had also developed a monitoring framework, requiring detailed reports from provinces. Provincial visits were carried out, with regular interaction to try to alleviate problems

    Mr Nabantu presented statistics on the current and past performance of the grants in terms of delivery of housing, amounts spent and pointed out that there was almost an equal division between homes headed by male and female. He also gave the expenditure status, broken down by province, of each of the grants as at 31 January 2005.

    The Integrated Grant showed that 71% of the total funds allocated had been spent. In the Western Cape spending delays arose from problems in two projects, which had now commenced. North West had struggled with spending because of capacity problems and change of leadership. In Limpopo spending was expected to increase by the end of the year.

    The HSR Grant spending had been more problematic because it was a pilot project; it had suffered from inadequate business plans; Municipalities had hired consultants who had not used the proper criteria. Valuable lessons had been learnt which would assist in developing new and more comprehensive plans.

    Mr Nabantu stated that housing was a concurrent legislative function between provincial and national government, and that the frameworks provided for uniform standards across the country. There was a plan to try to accredit municipalities to administer their own housing programmes by the end of the year Both Housing Grants met with the requirements of the Constitution, and both had clear indications of planned outputs against which progress could be monitored. Guidelines on the percentage spending for the new integrated grant would be developed and approved by MinMec, and this would form the basis for the conditions of the grants in the Division of Revenue Act framework. MinMec should agree the prioritisation process and this would be used as a basis for measuring provincial performance. Operational expenditure to support the capital expenditure had been provided for. Data verification was an ongoing challenge but systems of matching data had been developed.


Mr Nabantu pointed out that most of the issues on the Division of Revenue Bill had been discussed with National Treasury and it would be possible for the Department to effect adjustments "in year" within the Housing sector. The process of internal audit, reflected in Clause 30 of the Bill, would ensure better management of risks and was welcomed by the Department.

Discussion
Quality issues
Mr M Robertson (ANC)raised two problems that had occurred in the Eastern Cape. One-concerned legal disputes over land acquisition and water, and the other related to poor quality of building. He asked whether these issues would be addressed.

Mr D Botha (ANC) agreed that delivery should be measured by quality rather than quantity as some dwellings were very poorly constructed. Delays were also a problem as if there were undue delays the family allocated the house would often move away. He asked how the Department of Housing assisted the Provinces to monitor these situations.

Mr Nabantu (Department of Housing) replied that the Department was concerned with quality issues and was constantly seeking solutions to problems. He explained that the subsidy had remained at a constant figure despite high inflation in the late 1990’s, and that contractors tried to cut corners in delivery. The new plans would address these issues. Quality assurance was to be brought in line with high-income dwellings. He agreed also that problems had arisen in monitoring but that MinMec had heard presentations on the capacity of each Province to deal with housing..

Mr Nabantu agreed that some projects did take far too long and the Department was seeking ways to fast-track delivery. If proper structures were implemented across government departments and downwards to the Provinces, there could be substantial improvement and a better assessment of exactly where the backlogs occurred so they could be addressed.

Mr E Sogoni asked whether there was capacity to devolve monitoring and implementation to the Provinces

Mr Nabantu stated that inadequate inspection had arisen through lack of capacity. At national level, the Department carried out selected project visits. The structure of the monitoring was straightforward but most of the work was done by outsourcing. Municipal offices would in future be expected to perform quality checks. Some Provinces had paid for delivery on the basis of certification issued by people overseeing delivery, and the Department would in some cases have to rely on quality assurance taking place. More capacity would be given to this in future

Role of Department of Public Works
The Chairperson suggested that the role of the Public Works department, particularly in delivery of service roads to new developments, be discussed the following day and that the Department of Housing should be present.

Under-spending and over spending
The Chairperson asked for clarity on the monitoring mechanisms in cases where there were persistent under spending interventions. He asked for clarity on the whereabouts of unspent money and who would be responsible for these funds. He also asked for explanations on overspending by some provinces.

Mr Nabantu replied that under-spending would be analysed while other interventions were also put in place. The Department was not seeking to block funds where they could be utilised. If all the money was not spent, technically it would revert to the pool. Institutional capacity building was a priority, and would include structures, equipment, technical issues and skills. Interventions would depend on the case and the problem. Recently the Department had been able to tackle backlog problems in the Deeds Office and it was clear that there were cases where the Department would be the appropriate body to tackle issues quickly and effectively, rather than leaving it to the Provinces.

Mr Nabantu clarified that any money transferred but not yet allocated would be in the Provincial Revenue Funds

On the question of over-spending Mr Nabantu indicated that the percentage figures given on the transfer of funds were not necessarily an indication of over-spending, but rather of spending ahead of the monthly allocation. The yearly allocation would balance out. All spending had been agreed with provincial Treasuries and his Department would be able to obtain certification that spending was reasonable.

The Chairperson asked whether the data was reliable and whether the structures built could be pinpointed in terms of location and status, with comparisons made between amounts released and progress of building. He asked for an assurance that no double payments were being made. He referred to "reducing the costs of doing Government business" mentioned by the Minister of Finance and asked if the tender processes were equipped to deal better with demands and challenges, and how they addressed late submission of business plans, poor quality of plans, and reliability of data.

Mr Nabantu reported that inspections were being carried out and it was unlikely that double payments could occur because of the checking system. Emerging contractors were employed and paid according to delivery.

Municipalities’ readiness for the new system
The Chairperson asked whether municipalities were ready to be given the responsibility of managing their own grants. He asked whether this would not result in migration from one municipality to another where a better system could be implemented. He queried whether capacity should be diverted rather than the Department assisting provinces.

Mr Nabantu replied that the devolvement of housing delivery to Municipalities was contained in the Housing Act. Housing was a national concern and accreditation would require substantial work as no municipalities had been accredited over the last ten years. Capacity had been a problem, and the Department was constrained to ensure that Municipalities had the proper structures to meet the demands. Therefore, accreditation would be given where the Municipalities undertook to commit to finding capacity in return for the investment in them. Other incentives would include reducing the process of transferring funds to a shorter time frame. However, the Department was also mindful that its own capacity to monitor would need to be increased and was prepared to address this issue.

Mr Nabantu stressed that the Department was not intending to accredit large numbers, but rather to run a pilot project on larger selected metros and to assess whether Municipalities were indeed capable of meeting the requirements.

In answer to the Chairperson’s point on migration, Mr Nabantu replied that he believed that work availability and economics were the prime cause of migration.

Mr M Goieman (ANC) asked what precisely the Department was doing to address lack of capacity and what processes had been put in place to address problems where they arose. He queried whether municipalities were truly ready, and was particularly concerned about the flow of information. He indicated that the Sol Plaatjies Municipality was one of the smaller ones, but had fared much better than the larger metros, with Swedish funding, and that perhaps the criteria for the pilot project should be reassessed on quality of housing erected.

The Chairperson took this point, and asked for further clarification. He pointed out that although Municipalities had had the ability to apply for accreditation for a number of years, none had done so. He referred to the reports of the Auditor-General for the 2003 and 2004 years, indicating that the larger metros – City of Johannesburg and Cape Town – had both been singled out for poor financial management, and mistakes in accounting procedures. It should not be assumed that larger municipalities had the capacity or the ability to deliver. He asked whether the timing was right to put these new systems in place, or whether the Department and Treasury should be asked to work out a system which would convince the Committee that any procedures implemented were proper and sustainable, based upon totally reliable data.

Mr Nabantu replied that the Housing Act was passed in 1987 and this begged the question why the Department was intending to proceed only now. He explained that many Municipalities were unaware that they could apply for accreditation. In addition, Treasury was of the view that they needed an incentive, and had now provided funding, on condition that certain quite stringent criteria were met – including stability, the ability to plan and carry out plans timeously. Although the accreditation process would be carried out in 2005, the transfer of funds would take place only in 2006.

On the Sol Plaatjies issue, Mr Nabantu said he would make some further enquiries but he pointed out that they had possibly received external funding. Some Municipalities had used their own funding from special quarterly accounts to "top up" housing, some were collecting rental on business assets.

Capacity problems
Mr M Robertson raised the point that many of the Departments making presentations had referred to lack of capacity. He asked Members to consider whether problems arose through genuine lack of capacity, or rather through lack of proper management.

Mr Nabantu replied that both had probably contributed to problems. His Department was taking proactive steps to address the problems . Where there was non-delivery, an analysis of the requirements, the current capacity, and the optimum capacity was done. Interventions would differ according to the level at which there was a problem. Consultants could be appointed but they were very expensive and did not address the ongoing problems of ensuring delivery. The Department would expect the Provinces to appoint more inspectors once amounts were allocated and the Housing Chapters would need to be updated and aligned.

Mr Nabantu summarised that the Department was ready to deliver in terms of the Minister’s criteria. There was a commitment to delivery from national and provincial departments and he personally had been involved in a large number of projects and areas. Co-operative governance was proving effective and could well lead to the fulfilment of a single public service.

The meeting adjourned with no vote having been taken.

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