Provincial Education Departments: Conditional Grant hearings

NCOP Finance

05 June 2005
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Meeting Summary

A summary of this committee meeting is not yet available.

Meeting report

FINANCE SELECT COMMITTEE

FINANCE SELECT COMMITTEE
6 June 2005
PROVINCIAL EDUCATION DEPARTMENTS: CONDITIONAL GRANT HEARINGS:


Chairperson: Mr T Ralane (ANC) [Free State]

Documents handed out
National Treasury PowePoint presentation on Conditional Grants and Capital Expenditure
National Treasury Preliminary Outcomes of Provincial Budgets 2004/05
Mpumalanga briefing
Gauteng briefing
Kwa-Zulu Natal briefing – Part 1
KwaZulu-Natal briefing – Part 2
North West briefing
Free State briefing

SUMMARY
National Treasury provided a breakdown of the extent to which the nine provinces had spent the conditional grant funds, with special reference to education grants. The Mpumalanga, Gauteng, North West, Northern Cape and Kwa-Zulu Natal Education departments then outlined their conditional grants allocations and spending over the previous Medium-term Expenditure Framework (MTEF) cycle, and provided reasons for failure to spend 100% of each grant allocation.

During the discussion, Members sought clarity from the provincial departments on the reasons for failing to spend their full allocations and the reasons for sudden spikes in spending. Disputes arose between some of the provincial departments and National Treasury with regard to the accuracy of the expenditure, and the Committee questioned whether this was due to inaccurate or outdated data submitted to the provincial treasuries by the departments.

The provincial departments were asked to explain the measures put in place to constantly and effectively monitor provision of conditional grants. Provinces indicated that they were experiencing significant trouble with emerging contractors who did not have the necessary capacity to provide effective services, and the provincial departments of Education and Public Works were working together to capacitate such contractors. This involved a difficult balancing act between effecting Broad-based Black Economic Empowerment (B-BBEE) and effective service delivery.

The five provinces indicated that the two provincial departments were also working together to provide schools. Farmschools were being closed because they were no longer considered sustainable. The provincial departments were asked to explain the extent to which they had resolved the backlog in payments to educators.

MINUTES

The Chairperson noted the apology by the Minister of Education for the absence of her MECs from the meeting, as they met on Mondays. For that reason, the Committee had requested that Heads of Department be present instead. The aim of the meeting was to obtain very specific answers from the Provincial Education Departments on questions posed by Members. National Treasury would first lay the groundwork and indicate the current state of provincial education grant allocation and expenditure. This meeting was a follow-up to the meeting held in March at which the provincial departments had promised better spending by the end of the financial year. The Committee was disappointed to find that its worst expectations had been realised as the provincial departments reported underspending, financial dumping etc. These issues would be considered extensively over the next two weeks and, come July, the Provincial Departments would again be called before this Committee to report on their financial status at the end of the first quarter.

National Treasury briefing
Mr Jan Hattingh, Treasury Chief Director of Intergovernmental Relations, presented the preliminary provincial numbers as at 31 March 2005. The presentation contained provincial breakdowns of all conditional grants and figures for all the provincial departments that would be considered by the Committee over the next two weeks. The presentation indicated the overspending and underspending by provincial departments, and noted that the average amount of underspending for all provincial departments currently stood at R4.7 billion. This was quite substantial especially in view of the fact that provinces on average overspent over the last financial year. The presentation also outlined the net provincial expenditure per province on the total social services package, as well as the breakdown per programme for the health, education and social development departments.

The overview of the Budget outcome with regard to conditional grants and its spending rate per province was outlined. The capital expenditure trends of each province’s education and health department were outlined, as well as the expenditure on roads and transport and the housing subsidy. The reasons for the capital underspending and proposed solutions were considered. A breakdown of the health, agricultural, education and housing conditional grants was provided, as well as of the provincial and local government, sport and social development grants.

It was important to note that during the previous financial year a total of R413, 7 million was spent by provincial education departments on conditional grants which represented 97,5% of its total allocation, whereas this decreased to 82,4% during the current financial year.

Free State Health Department briefing
Mr T Khunyeli, Acting Superintendent General of Education, outlined the mission and vision of the provincial department, its strategic goals and objectives for 2004/5 and the types of services it delivered in 2004/5. A breakdown of the MTEF allocations as reflected in the Budget statement submitted to Treasury as well as the actual 2005-2008 MTEF allocations were provided, and a detailed breakdown of each conditional grant expenditure for 1999-2005 was provided. An overall analysis was provide of each education conditional grant expenditure for 2005 thus far, and the provincial department outlined its measures to monitor capacity and planning measures with regard to education conditional grants. Expenditure was very poor between 2000/2001 and 2002/2003 and stood between 28% and 47%, but improved in the period 2003-2005 from 86% to 92%.

Discussion
Mr D Botha (ANC) [Limpopo] thanked the Free State provincial department for the very detailed report, which was appreciated. He sought clarity on the reason for the continual roll-overs on flood relief.

Mr Khunyeli responded that this was due to the fact that those projects had not yet been completed, because the emerging contractors responsible struggled to complete the project. Some of those projects were abandoned mid-way. The reasons for this included lack of capacity, failure to put proper punitive measures in place in the original tendering contract for failure to deliver and poor monitoring by the provincial departments of Education and Public Works. The problem with poor monitoring was a systemic issue. The result was that the funds were rolled over.

Mr B Mkhaliphi (ANC) [Mpumalanga] thanked the provincial department for the briefing. He stated that the briefing indicated that the provincial department was rather slow in picking up with capacity for implementing what was contained in the budget. He asked whether the provincial department would always be caught by surprise by the allocations, especially the conditional grants. Surely they were the ones who applied for the funds in the first place. Clearly the budgeting process was flawed if the department did not have the necessary capacity to spend the funds it had requested.

Mr Khunyeli replied that it was true that poor planning had occurred, especially during the first years. As indicated by the presentation there was very poor expenditure in 2000 and 2001. The provincial department did know in advance when the funds would be transferred and the business plans would be put in place as well as the relevant capacity needed. He stated that the greatest weakness within the department was with project management, and this was reflected in the poor implementation of the project.

Mr Mkhaliphi sought clarity on the R19 000 that was not paid to CBOs, NGOs and volunteers, simply because they were not properly capacitated with regard to submitting valid claims. Surely that was not the way to deal with people who worked in partnership with this government?

Mr Khunyeli responded that the intended beneficiaries would suffer if the funds that were allocated to them never arrived. The provincial department had to balance the requirement for payment of these funds to the fact that management of those organisations had to comply with the conditions. Should it be that they were not awarded the funds because they did not know how to apply properly, then that would be a weakness within the provincial department as it should then assist those organisations to comply with the requirements.

Mr Z Kolweni (ANC) [North West] asked the provincial department to indicate the reasons for its turnaround of 86% in expenditure in 2003/4.

Mr Khunyeli replied that this was due to many factors, and it was a serious concern right from the outset that the provincial department’s expenditure on conditional grants was so low. Concerted efforts had since been made to ensure that systems were in place, such as the HIV/AIDS grant, and it was for that reason that the provincial department then registered expenditure of 198%. He stated that the areas of poor expenditure that remained were due, without exception, to poor capacity within the provincial department. Generally however there was significant improvement in terms of monitoring expenditure and the skills of departmental personnel to draw up and implement business plans.

Mr Kolweni disagreed with the provincial department’s reasons for spending only 58% of its total allocation on Early Childhood Development (ECD) in 2004/5, as the infrastructure was in place and all the problems should have been detected in time.

Mr Khunyeli responded that the reasons for the problems with ECD were not acceptable, and the provincial department should have done all it could to resolve the problem.

Mr Kolweni asked the provincial department to indicate when its regular monitoring meetings with the Department of Public Works, Roads and Transport had started, as that measure could prove invaluable in solving some of the problems.

Mr Khunyeli replied that these meetings would definitely improve the system significantly, as weaknesses within the two departments would then be identified. Heads of Department attended those meetings, not junior staff. This process had not been well established from the outset, and matters that were raised during those early meetings were not addressed and that resulted in poor service delivery. The meetings had developed into an important tool. The Department had also entered into a Service Level Agreement (SLA) with that provincial department which was intended to ensure delivery and clearly define the targets and roles of the respective departments.

Mr Kolweni asked when the technical assistant provided by National Treasury took office.

Mr E Sogoni (ANC) [Gauteng] stated that the presentation did not clearly indicate the areas of capital expenditure.

The Chairperson stated that presentation indicated that infrastructure was lacking because contractors were not properly capacitated. He asked whether the provincial department was referring to emerging or established contractors, and to explain the measures it put in place to deal with the matter.

Mr Khunyeli responded that the problem with emerging contractors had been identified both in the last MinMec and the 2001 meeting as the main problem, and provincial departments were cautioned to deal thoroughly with such contractors when awarding tenders, even if for smaller jobs.

The Chairperson sought clarity on the implications of the huge underspending on infrastructure, and asked whether this meant that there would always be cases of children learning under trees. If this was in fact the implication, he asked the provincial department to explain the steps it was taking to address the problem. Furthermore, the impact on the community would be "very very negative".

Mr Khunyeli replied that there was currently a serious capacity problem in the division within the provincial department that dealt with infrastructure, and this was being dealt with. A very clear infrastructure plan was devised for the next five years which clearly showed the projects per year. Constant and intensified co-operation with the provincial Department of Public Works would assist in the improvement in service delivery. He stated that the provincial department was considering another Public Private Partnership (PPP) alternative that would address some of the infrastructure backlogs, such as the establishment of schools. By 2008/9 the provincial department planned to have eliminated all the "platooning" schools. A total of 13 schools would be built via the PPP option, as this was an expedited process.

As far as the provision of basic services such as water, sanitation and electricity was concerned, the provincial department was already collaborating with Telkom [OK, IS TELKOM SPONSORING THE INITIATIVE?? BECAUSE IT IS A TELECOMS COMPANY THAT NORMALLY HAS NOTHING TO DO WITH WATER, SANITATION ETC?? – Telkom is providing funding as required by its social responsibility mandate]with regard to the provision of water and sanitation. Approximately 170 schools had been identified for renovation and rehabilitation of the facilities. The support of other government departments and service providers would be obtained in this regard.

The Chairperson asked the provincial department to explain what it planned to do with the roll over funds on infrastructure. He asked whether it would be returned to Treasury and when the funds would be available to be used. He asked whether this was due to internal incapacity.

Mr M Robertson (ANC) [Eastern Cape] sought reasons for the decision to close down many of the farmschools, especially in the rural areas. He questioned the possible benefit of closing down those schools.

Mr Khunyeli responded that the decision was taken to close many of these schools because they had dwindling numbers of learners. Some of the farmschools closed of their own accord due to the dwindling numbers, and the provincial department would then simply process the paperwork. There were also farmschools that the provincial department itself had identified for closure as part of the project to improve conditions for learners and educators on the farms. Most of the learners at those schools travelled great distances to get to school and the provincial department decided to identify those schools at which learners were travelling 21 km’s or more, and those learners would then be transported to the hostels. This project was running very well in the province and a programme was introduced to transport those learners from their schools to their homes.

The Chairperson stated that the responses provided by the government departments would be recorded and the Committee would follow-up to see if the provincial departments abided by their promises with regard to expenditure.

Secondly, the Chairperson noted that the Free State Department of Public Works had only spent 57% of its infrastructure allocation, which was the lowest in the country. He asked the Free State Public Works MEC to indicate the extent of collaboration between his department and the provincial Education department to avert the catastrophe.

The Chairperson asked the MEC to explain the extent to which the strategic plan referred to by Mr Khunyeli was related to the Infrastructure Delivery Improvement Programme (IDIP), and how they were working together to provide classrooms and other infrastructure.

Mr Sogoni noted that the provincial department’s directorate of management accounting was established in September 2004, and sought clarity on the successes of that initiative.

Secondly, Mr Sogoni asked the Public Works MEC to indicate the extent to which the problems experienced with under-expenditure on infrastructure were due to his department.

Thirdly, Mr Sogoni asked whether the funds were released only when clear business plans were in place.

Mr S Mollai, Free State Public Works MEC, replied that there had been strings of bi-lateral sessions aimed at addressing improved service delivery. There was no problem with the relationship between the two provincial departments, but there were however problems with disjointed planning processes which led to long cycles in planning its projects. This was coupled with capacity problems at times, and resulted in the need to re-look at the role of the Free State Department of Public Works. A possibility was the establishment of a centralised technical team within the provincial Department of Public Works that was able to promptly discharge its responsibilities, especially the reduction of the long planning cycle which was a real hindrance to service delivery.
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The Chairperson asked whether the Free State had packaged the provision of classes, and requested a progress report on this packaging process. There was no reason for the "platooning" of schools as the fact of the matter was that there were funds available for the establishment of that infrastructure.

Mr Khunyeli replied that the number of "platooning" schools in the Free State had reduced drastically from close to 100 schools in 1994 to 21 currently. The main problem was the long time it took to build a school. Even though there were funds available within that financial year, they would not necessarily be dedicated to the provision of schools because those funds were used for other projects such as the renovation of schools and provision of basic services. The provincial department now had a very clear plan which identified the schools that would be built, as well as the timeframes for the projects.

The provincial department had also realised that in some cases, the needs changed during the year, and the plans thus needed to be changed accordingly. The belief was that the strategic plan together with the PPP option would eliminate the "platooning" schools.

The drop in the provincial department’s infrastructure budget was due to serious capacity problems in the Department with regard to managers. This would however be cured by the healthy relationship between the provincial Departments of Public Works and Education, as well as the strategic plan. He promised an improvement in service delivery.

The Chairperson sought clarity on what the infrastructure funds were spent on, as all could not be spent on classrooms alone.

Ms Malijeng Ngqaleni, National Treasury Director: Intergovernmental Policy and Planning, responded that the conditional grant for infrastructure was basically a grant that was meant to supplement provincial budgets to support increased spending on infrastructure. The term "infrastructure" included the construction of schools or classrooms, meeting sanitation and water requirements as well as maintenance.

Mr Hattingh stated that during 2004, Treasury had assessed all the conditional grants and the business plans produced by all the national departments, because it varied across departments. Secondly, Treasury was working very closely with the national departments to ensure a scenario in which the national departments approved business plans at the beginning of the financial year, as this would clearly delay the implementation. The third initiative was the IDA programme, and the Free State had a technical assistance official responsible for that.

As far as over- and under-expenditure was concerned, the PFMA stipulated that both were serious contraventions of the law. The Presidency had requested Treasury to explore options for developing an expenditure norm that stated that, for example, expenditure within 2% above or below the allocated amount would be tolerable. A very clear answer to this would have to be found before the PFMA amendment process.

The National Treasury grant involved the transfer of R3, 3 billion to provinces, and provinces had put R12 billion on the table as capital. The grant was thus aimed exclusively at "piggy-backing" provinces and to begin investing more funds into infrastructure.

The Chairperson stated that the success of the strategic plan would be evaluated at the next review in July 2005. Severe under-expenditure by his Department amounted to nothing less than gross negligence.

Mr Khanyeli replied that he was prepared to make such a commitment, as the recent under-expenditure was not acceptable. Mr Mollai agreed.

The Chairperson stated that it was clear from the example of the Free State department that provinces did not speak to each other with regard to the kinds of trade-offs that could be made to ensure effective service delivery, because each province sought to secure the biggest slice for itself. This was a big problem that the Committee had noted.

Furthermore, the Chairperson stated that a significant portion of the meeting was dedicated to the Free State Education Department because it appeared to be "in the ICU".

Mr Mkhaliphi stated that he had a general question that all the provincial departments present today must respond to. He requested the presenters to appraise the Committee of their progress in phasing out backlogged payments to educators, which in some instances went all the way back to 1996.

Gauteng Health Department briefing
Mr A Dube, Gauteng Education Department, outlined the background to the three conditional grants provided by the provincial department, the allocation and expenditure trends for 2004/5 and 2003/4 and its measures to monitor its capacity to provide the grants effectively.

Discussion
The Chairperson asked the provincial department to explain the reason for spending only 84% of its capital allocation.

Mr Dube replied that the R125 million not yet spent related to retentions and final accounts. The problem was that Treasury did not grant the ideal amount required for the payroll, and a decision was taken to freeze the provincial department’s capital expenditure. The result was that those final payments and retentions were not paid in the 2004/5 financial year, but would be paid in the 2005/6 financial year.

Mr A Chanee, Senior Manager: Education Financing and Planning, added that there was a shortfall of R859 million in the department’s personnel budget, based on its projections with the changes in conditions of employment. Of that amount the Gauteng provincial Treasury made available R570 million, and the department was then required to find the balance within its budget in both non-personnel/non-capital expenditure as well as in capital expenditure. The decision was then taken to freeze vacant posts, and the net amount needed for this task was R120 million. It was estimated that a large portion of this amount would be obtained from the capital expenditure allocation, as the provincial Treasury indicated the department was allowed to do.

The provincial department then essentially re-prioritised its capital expenditure programme and a number of projects were frozen. Yet as its expenditure patterns began to improve, and as the provincial department was able to manage its personnel expenditure, the provincial department then implemented the projects that were possible in the last quarter of the year. These were mostly renovation and refurbishment projects. The department was however unable to pay those accounts because it commenced those projects very late. Each one of the 191 school projects had been completed, but the department was simply unable to pay for all the projects. Most of the projects dealt with school maintenance and renovation, which was done at a cost of R88 808 000 which the department was applying for as a roll-over.

Mr Hattingh responded that the capital under-expenditure for the Gauteng Education department needed to be looked at jointly with the slide in the Treasury’s presentation on personnel. It was true that, as indicated by the Gauteng Education department although they did not state it as bluntly, there was a degree of under-funding in their educations budget for 2004/5. The mere fact that the province needed to make an adjustment to the tune of approximately R700 million was a clear indication that the budget, in the first instance, was slightly under-funded.

The Chairperson sought clarity as to who was responsible for the under-funding.

Mr Chanee replied that the under-funding was the result of a miscalculation by the Gauteng provincial Treasury of personnel costs over a period of three years. The Gauteng Education department had placed this miscalculation on record over the past three years. The recalculation was done last year and was based on a correction of the baseline figures, which were incorrectly used by the provincial Treasury in arriving at their projections.

The Chairperson asked whether the under-funding was due to the fact that the Gauteng Education department submitted incorrect data to the provincial Treasury.

Mr Chanee responded that correct figures were submitted to the provincial Treasury.

Mr Hattingh confirmed that an adjustment the size of the one made to the Gauteng provincial department in the adjustment budget suggested that there must have been under-funding in the first place.

The Chairperson stated that this matter needed to be clarified in this meeting because the Committee would be meeting with the provincial Treasuries during this week. The Committee would be engaging the Gauteng Treasury on this matter especially as they were provided with correct information by the Gauteng Education department.

Mr Sogoni asked whether the funds that were being referred to by Mr Chanee fell within the 84% of capital expenditure, which would mean that the department in fact spent less than 84% of its capital expenditure budget.

Mr Chanee responded that the province experienced problems during the year with its accounting system in that the new chart of accounts had not been captured correctly on the accounting system. The result was that many transactions were being posted into current expenditure, rather than capital expenditure. Thus the figures produced by National Treasury still contained some of the areas that would have been cleaned up as the department moved to the final account stage.

He stated that the provincial department had a budget of R884 million of which it had spent R756 million, and it failed to spend R88 808 000 which the department had applied for as a roll-over. Of the R88 million a total of R15 million was a retention fee and R73 million was for final accounts. In this way, the department would thus move beyond the 84%. There was one problem in the accounting sphere for which the department did not apply for a roll-over, but that was an in-year decision.

The Department was running the Gauteng Online project which was aimed at increasing the IT infrastructure in schools, and because of a high incidence of burglaries a portion of the Gauteng Online capital expenditure had to be used to fund security guards at high-risk schools. This was an in-year decision that should be reflected in current expenditure, but had now been reflected in the financial statements.

The Chairperson asked the Treasury to explain whether it was appropriate for the provincial department to use those funds for the employment of security guards.

Mr Hattingh responded that in normal circumstances if funds were earmarked for capital, then theoretically they should not be used for concurrent services because they diminished the actual outcome at the end of the period.

Mr Robertson stated that a report as detailed as that of the Free State department was preferred to the kind of presentation delivered by the Gauteng department.

Mr Chanee replied that the Department was not sure of the amount of detail required of them, and apologised to any lack of depth in the report. He was confident that the report corresponded to the guidelines provided by the Committee.

Mr Mkhaliphi sought a response to his general standing question on the backlogged payments to educators.

Mr Chanee responded that the provincial department had implemented the repayments based on a system-wide application. Yet in implementing the 3% repayment, the formulas used by SITA did not calculate certain deviations, and the provincial department was now in the process of managing those deviations manually. Within the Gauteng Department, there were about 20 000 deviations out of an establishment of approximately 48 000 educators that did not follow the rule on the PERSAL system. These thus had to be processed manually and the process should be finalised within the next month.

Mr Mkhaliphi stated that Mr Chanee had not provided a clear answer to the question.

Mr Hattingh replied that Treasury had transferred funds to provinces in the adjustments budget to the tune of R595 million, and Treasury understood that no province would actually pay in the previous financial year but would instead begin paying the backlogs from 1 April 2005. It was therefore a legitimate case for the provinces to request that the funds be rolled over.

Mr Sogoni asked whether these funds were shifted from the conditional grants or from the provincial equitable share. Mr Chanee responded that they were transferred from the equitable share.

The Chairperson stated that it was interesting to note that, at 31 December 2004, the Gauteng Public Works, Roads and Transport department had spent 1% of its budget. Yet at this moment it was reporting expenditure of 104% of its capital expenditure budget. This issue would be considered further at another meeting.

Kwa-Zulu Natal Health Department briefing
Mr T Ndlovu, Acting DDG; Corporate services, tabled the formal apology of the KwaZulu-Natal Education MEC and Head of Department. The provincial department had established a new directorate that would deal exclusively with the school nutrition programme, and much effort was being made to sufficiently staff that directorate. He requested that the Committee at some stage engage with the challenges for 2005/06 in relation to the targeting of learners for the school nutrition programme as, especially for KwaZulu-Natal, it had financial implications.

The Department had concentrated its efforts on improved infrastructure provision, so as to ensure the ultimate eradication of "schools under trees". This was also raised in the MinMEC, especially the need for an improvement in the relationship between the KZN Education and Public Works Departments. The Education Department was addressing the issue by the establishment of a permanently appointed Head of Department, which would take the process forward in a much more streamlined manner.

He stated that their presentation indicated that the capital expenditure reflected that the Department was at 68%, yet the Department posited that it was actually at 83%. This was due to the fact that when the provincial department realised the under-expenditure in November 2004, it began to establish mechanisms to begin to address and fast-track that issue, such as the procurement processes. This fast-tracking resulted in the creation of classrooms at a cost of R124 million which would then be deducted from the overall under-expenditure figure of R225 million. The target was the delivery of 665 classrooms by December 2005. A total of R60 million was committed and completed by the provincial department of Public Works, but this occurred at a late stage and was not captured in the report. A further reason for the failure to report on all the projects and progress was that the provincial department’s offices had moved, which impacted negatively on accurate reporting.

As at 30 May 2005, the provincial department had spent 70% of the educators’ backlog payments.

Dr L Mbatha, Chief Director of Education Development, Planning and Support Services, outlined the data trends in conditional grants allocation, transfers and actual expenditure on the school nutrition programme and HIV/AIDS conditional grants, the provincial department’s monitoring capacity of this grant for 2004/5 and the mechanisms it had put in place to deal with over-expenditure.

Discussion
The Chairperson noted that KwaZulu-Natal was the only province that spent under 70% of its HIV/AIDS allocation.

Dr Sole, KwaZulu-Natal Education Department, replied that out of a total of R145 million the Department had spent R136 million, with an under-expenditure of R9.4 million. All these figures were included in the document provided.

Mr Sogoni stated that he was very dissatisfied with the lack of detail in the KwaZulu-Natal presentation. He stated that the Treasury presentation indicated that the KwaZulu-Natal Education Department had spent 68% of its capital expenditure budget.

Mr Ndlovu responded that the figure was correct, but it did not correctly reflect the amounts that the provincial department had committed because it was currently sitting at 83% of its capital expenditure budget. The provincial department had committed 83% of its capital expenditure budget, but not all the funds have been spent.

Mr Hattingh stated that before Treasury released such figures it would first obtain the signature of the head of the provincial Treasury and each and every Head of Department. He thus disagreed with Mr Ndlovu that the incorrect figures were reflected in the Treasury document. He was however willing to acknowledge that subsequent to the final date the provincial department could have processed certain transactions, and perhaps the 83% would be reflected in the final financial statement. The figures reflected in the document were as a result of data signed off by province.

The Chairperson stated that the Committee must also be provided with copies of the figures that the province had signed off on, so that the provinces would not be able to dispute the accuracy of figures. He stated that it was again clear that the individual departments within the social services cluster were not communicating with each other to provide proper services to the community.

Furthermore, the Chairperson stated that transformation on the one hand and Broad-Based Black Economic Empowerment (B-BBEE) on the other must not be compromised, especially in the tendering process.

Mr Ndlovu replied that the KwaZulu-Natal provincial Department had insisted that 40% of all the procurement in the province, beginning in April 2005, had to be committed to BEE. Secondly, 10% of the provincial department’s procurement in line departments must be co-operative. Thus the BEE commitments could not be avoided.

The provincial department had learnt many lessons from its fast-track process. Part of the reason for the delay was that the Department had committed emerging contractors at the beginning of March 2005. It was learnt 6 weeks later that although sites had been handed over, they had not started building solely because they had no start-up capital. Yet they did not declare this upfront for fear that they would not be granted the tender. The provincial department then had to liase with the provincial Treasury to have those emerging contractors recognised.

The provincial Department of Public Works still had a role to play in the fast-tracked process, as it would provide all the specifications and monitoring from beginning to end. There were in fact cases in which contracts had to be terminated due to unacceptable performance, in order to balance effectiveness and equality.

The Chairperson stated that both the State President and the Minister of Finance had stated that government business must be conducted economically, effectively and efficiently. He asked the Department to explain the extent to which this was ensured, especially in its tendering processes.

Mr Ndlovu replied that the provincial department worked together with the provincial Public Works and Treasury departments, and in each step of the way the Department kept in line with the agreed requirements for procurement processes.

The Chairperson noted that the KwaZulu-Natal Education Department had over 1 000 suppliers for school nutrition, and questioned the establishment of norms and standards to streamline this project.

Mr Ndlovu agreed that the current quality of the provincial department’s nutrition programme was extremely poor. The Department had received reports that learners were being given peanut butter sandwiches that had cooking oil added to it, to increase the size of the portion. The Department had in fact obtained a court interdict that prevented it from entering into a tender arrangement with such suppliers, and the proper quality management system would be introduced in a month’s time.

The Chairperson asked the Department to explain how it planned to deal with the shortfall of funds on this project.

Mr Ndlovu responded that the provincial department would have to look towards its voted funds in this regard. The KwaZulu-Natal Treasury had promised, in principle, to provide the R55 million needed for the school nutrition programme.

Mr Robertson stated that the Committee had learnt, during its oversight visit to the province in 2004, of schools in very poor condition. He asked whether the conditions in those schools had improved since the visit.

Mr Ndlovu responded that the decision to fast-track infrastructure spending, as indicated during the presentation, was a direct response to that shocking revelation. He stated that he had also indicated at that time that the Department would not be able to spend R637 million. The Department then began considering means and mechanisms to begin responding to that challenge, which led to the construction and repair of 665 classrooms. The schools visited by the Committee were included in this number.

The main reason for the backlog was because most schools were mud structures that were constructed by the community itself, or were structures that would not have been approved by the provincial Department of Public Works. They would thus have to be condemned. This was worsened by the fact that the majority of these schools fell within the corridor referred to as "nkanyamba", which meant that they were hard hit by storms. As a result the provincial department was also dealing with 620 schools that had been storm-damaged, over and above the classrooms that needed to be constructed. A system was being put in place that would forecast infrastructure that would need to be maintained in five years time, and it was believed that this would assist in proper planning and dealing with the backlog.

Mr P Benade, Chief Financial Officer of the National Department of Education, said that the Education Department had taken over the school nutrition programme from the Department of Health on 1 April 2004. It had been clear from the outset that the first year would be ‘shaky’. The Department of Education would have to take over contracts that were already in operation and it would also be taking over an existing scheme. The provincial department was however entering into new contracts as the old contracts came to an end, and this would eventually result in the eradication of 1000 different contracts. It was thus neither possible nor feasible to take over the scheme, turn it upside down and introduce a completely new scheme.

The difficulty would be how it would be managed in future because, historically, it was managed differently by the different provincial health departments. The national Department of Education had been considering the introduction of norms and standards for a long time now, and food gardens have been identified as a possibility because they had been very successful in certain provinces.

Mr Robertson stated there was only one farmschool remaining in his constituency in the Eastern Cape province. The only option left to the parents of learners was to send them to schools in other areas that did not have hostels for the learners, with the result that they had to live in little shacks in backyards. He proposed that there was no reason to close those schools because they were in a good condition, and were now going to ruin.

Mr Benade responded that he was unable to provide a hard answer at the moment. The Chairperson directed Mr Benade to commit his principals on this matter.

Mr Benade replied that the executive function for the running of schools was a provincial competence. He noted the Member’s concern and would convey it to his principals. He encouraged the Member to reduce the concern to writing and to formally forward it to the Minister of Education. He stated that a dedicated team had been established at national level that would function as a help desk on this matter.

Mr Ndlovu stated that this was a serious equity issue. There were serious implications between what the provincial department gave in monetary terms and what it sought to acquire in terms of its transformation trajectory. If a school had twenty learners it would have a set number of teachers and would have to provide defined streams of instruction to those learners. The problem then occurred that those teachers remained absent for an indefinite period of time, with the result that the learners were left stranded. This was a serious equity problem and the provincial departments needed the assistance of the Committee to drive the process forward.

Mr Hattingh stated that the KwaZulu-Natal Education Department had been under pressure lately, and he was aware of a joint initiative between the Departments of Public Service and Administration and Education to provide support and guidance to take the provincial department forward. He stated that he was confident that the introduction of a permanent Head of Department would with time result in stable and systematic change.

The Chairperson stated that this Committee would be checking up on the progress made by the provincial department during the next review.

North West Health Department briefing
Mr A Seakamela, Head of Department, outlined the trends and allocation of the school nutrition grant, HIV/AIDS and infrastructure grants from 2004-2007, an assessment of the monitoring of the provision of the conditional grants and the extent to which the provincial department over-spent or under-spent.

Discussion
The Chairperson asked Mr Seakamela to confirm the figures in the Treasury presentation that his provincial department had spent 70,5% of its capital expenditure budget.

Mr Seakamela responded that his Department’s figures indicated spending of 76.2%.

The Chairperson stated that this was precisely what Mr Hattingh referred to earlier regarding the provision of reliable information to Treasury. He stated that he would raise this matter again at the next Budget Council meeting.

Mr Sogoni sought clarity on the reasons for only spending 76.2% of the capital expenditure budget, if Mr Seakamela’s figure was correct.

Mr Seakamela replied that the North West presentation indicated the November 2004 and March 2005 budgets, and the November 2004 budgets reflected the adjustments that needed to be made. A total of R28 million of November 2004 readjustments had been allocated to infrastructure projects. The tendering process for this could only begin in January 2005 as that was the only time when the funds could be committed. Thus the provincial department was unable to spend its full allocation because it had received an additional allocation at a later date, which funds could only be committed at a later stage.

Dr L Sibeko, North West Department of Public Works: Head of Department, informed Members that the provincial Department of Education was responsible for 100% of the projects in the 2004/5 financial year. However she clarified that her department had contributed to the 76% of capital expenditure. Before the 2004/5 financial year there were several projects that were allocated to the Department of Public Works through two programmes: Programme 2001 and Programme 2003. As a result the Department of Education sat with a carry-through effect in its 2004/5 budget because, out of the schools that needed to be addressed via the two programmes, quite a number of schools were either not completed or they were paid for but never built.

The provincial Department of Public Works then had to deal with the backlog, and managed to complete all but three schools. These three schools were currently being completed, but their finalisation was delayed because they were surrounded by many disputes. One of the contracts was in fact cancelled because disputes arose amongst the joint venture partners.

The other carry-through effect was the finalisation of the final accounts. This was a very interesting package, because a certain portion of the payment to the contractor had been retained by the department until about six months after the completion of the project. This was so that the contractor could first repair any problems with the structure before the full purchase price was transferred. Most of the time the contractors were not prepared to go back and repair their mistakes.

Mr H Vermeulen, North West Public Works Department Chief Director: Infrastructure, added that the problem with the final account was however that when contracts went sour or the contractors had not completed the retention work, it was very difficult to agree on values with those contractors. His department had since decided to conduct a best assessment and to forward it to the contractor and, if they did not respond within a month, the amount paid to date would be set as the final amount and it would then be up to the contractors to contest it. It might be branded a harsh approach, but the department could not be held to ransom by people who failed to respond.

The Chairperson asked Mr Seakamela to state whether the allocations were transferred late by the provincial or national Treasury.

Mr Seakamela responded that it had been done by the provincial Treasury, as the adjustments had been secured towards the end of October 2004.

The Chairperson sought clarity on the implications of spending only 76% of the allocated budget, as there were several important services that needed to be provided. He sought clarity on the use of the remaining 24% of the budget.

Mr Seakamele replied that the implications were direct because the province had inherited schools that were in a state of disrepair, and they had to be fixed. This was a very serious concern. The provincial department strove to spend as much of its budget as possible but there were always challenges, such as the lack of capacity of emerging contractors. The majority of time was spent resolving conflicts amongst those who competed for tenders. The issues continued to bedevil the provincial department and it was moving as fast as it could to address the infrastructure backlog.

Mr Kolweni asked Mr Seakamela to explain the challenges of rolling out the school nutrition programme.

Mr Seakamela responded that his department had well over 1 000 service providers, and infighting amongst groups of service providers who had formed a single bid was a common occurrence. There were also many instances in which the requisition forms were not properly completed and this then posed logistical problems, given the sheer number of service providers. Many service providers could not even be paid electronically because they did not have any bank accounts, but this was the price that had to be paid in empowering local communities. It must be noted that despite the progressive procurement processes that were employed, these kinds of problems remained.

Furthermore the provincial department’s administrative machinery was not always as responsive as it should be, but the process was labour-intensive. The other challenges related to the monitoring of the implementation of the programme, and the problem with this function was exacerbated by a lack of transport facilities in a province as vast as the North West.

Dr Sibeko stated that there were three main challenges: the first was the problem with forward planning. The MTEF plan only focused on plans and expenditure from March to March, and did not properly plan for the entire three year MTEF period. As a result the executive council was really insisting on the introduction of forward planning. The provincial Public Works office had a project register system that resided in the Office of the Premier, and was one tool that ensured proper forward planning by departments.

The second was that the Preferential Procurement Framework Act (PPFA) and BBBEE provisions were followed to the letter, with the result that risk management was compromised. Government had to assist the emerging contractors, even with regard to the manner in which government classified them.

The third challenge was with regard to relationships between her department and the provincial Department of Education, and this was in fact a national problem as well. Instead of complementing each other, the departments were very often at each other’s throats and blamed each other for shortcomings.

However the two departments were completing an infrastructure plan for the province, which the executive council stipulated had to be MTEF-aligned. Her department had signed a service level agreement with the provincial Department of Education, which included parameters in terms of forward planning. The danger was that, in the country’s enthusiasm to have no learners under trees, one could create too many schools only to find that in five years time, most of them would be standing empty. In an effort to address this, the department was engaged in a Scholar Transport Plan with the population register unit in the Premier’s Office, the Department of Transport and the Department of Education. This would allow the department to decide whether a school needed to be erected in a certain area, or whether the provision of a bus to transport scholars to the nearest school would suffice.

The department had also entered into a Memorandum of Understanding (MOU) with Standard Bank that would allow the department to cede payment to Standard Bank, which would allow the emerging contractors to start up their business. Standard Bank also agreed to provide training workshops on healthy financial management to such contractors at no cost. The Department was also negotiating with ABSA Bank together with National Treasury to try and look at the package of SMME support, and to loosen its requirements so as to allow access to start up capital by emerging contractors. There was also an effort to re-engineer the North West Development Corporation to assist the emerging contractors with funds.

She stated that her province also had an incentive system in place. According to this system if a contractor completed a project on or before the target time, he would be placed high up on the provincial department’s list of available contractors and would become eligible for the next biggest contract.

Mr Sogoni asked Mr Seakamela to explain which grant the code "AB7" referred to, as indicated in the presentation.

Mr Seakamela replied that this was the normal conditional grant that the province received from national government, which amounted to an additional R28 million.

Mr Kolweni asked Mr Seakamele to explain whether there was a budget for the maintenance of schools, and who exactly was responsible for that function.

Mr Seakamela said that the response of the department had always been that the financial resources available could not completely cover the full need, and it was for that reason that the provision of certain services would be prioritised. There were instances in which schools were not provided a certain service, not because the provincial department was lax in providing the service, but instead because its resources were constrained and it thus had to prioritise its funds. The department had been working with the provincial Department of Public Works in 2005 to identify those priorities and to close those gaps. It was thus a very difficult balancing act.

Dr Sibeko stated that the maintenance budget resided with the provincial Department of Education, and it conducted all the maintenance for the year under review. However late last year, the executive council resolved that the maintenance budget would be taken over by the provincial Department of Public Works, but halfway through that decision process, National Treasury wanted it returned to the provincial Department of Education. The maintenance plan for the financial year was a very good one, and constituted a joint effort by both provincial departments.

Mr Hattingh informed Members that all unspent funds had to be sent back to the provincial revenue fund and, in terms of Treasury regulations, the provincial department could then use its discretion and request a roll-over. Very clear criteria needed to be satisfied before this could be approved.

He stated that the national adjustment budget was done on 29 October and provincial departments must then table their adjustments budget 30 days thereafter. The provincial department would then know by 30 November at the latest whether there were any adjustments that needed to be legalised.

With regard to differential systems within government, all national and provincial departments with the exception of the North West province and two national departments were on government’s basic accounting system. In an attempt to improve the quality of Treasury’s data it had implemented a standard chart of accounts for national and provincial government which operated from 1 April 2004. Treasury was thus quite adamant that its figures on the North West province were in fact the correct figures.

Furthermore, Mr Hattingh stated that the infrastructure grant that was administered by National Treasury was transferred to provincial Treasuries, and the beneficial departments were Education, Health and Roads. Perhaps Treasury needed to provide a report on the overall grant package to the Committee.

The Chairperson stated that once again the reliability of data was at issue here.

Mr Robertson stated that a common problem throughout the provinces was that the provincial departments did not constantly monitor and supervise the contractors and their projects. Perhaps the contracts could be awarded to established contractors who would then subcontract to the emerging contractors.

Dr Sibeko responded that her department supervised builders with poor workmanship, but conceded that its monitoring of projects was not yet perfect. The provincial department however tried to improve by establishing regional monitoring teams that actually visited the project to see what was happening. There was also a programme manager’s system that required the monthly visit, and they were tasked with returning with photographs as proof of the progress made.

Mr Sogoni requested that the provincial departments supply more non-financial information on the maintenance budget as this would provide a better picture of the expenditure patterns and service delivery. Secondly, the North West presentation did not mention much about the HIV/AIDS grant.

Dr Sibeko responded that she would not be able to answer this question as it did not fall within her field of expertise.

Ms Nqulu (ANC) asked the provincial department to indicate the extent to which the community was involved in the feeding schemes, as this would not only empower the community itself but would also ensure the sustainability of the project.

Dr Sibeko replied that she would not be able to reply to this question because it dealt specifically with feeding schemes, which were not within her field of expertise.

Ms Nqulu questioned whether sub-contracting was not a viable option to ensure a transfer of skills to emerging contractors. This would ensure that the project was completed properly.

Mr Botha stated that all the provincial departments appeared to have problems with the fact that the emerging contractors did not have the necessary start-up capital to complete the tender, yet they would not disclose this at the outset.

The Chairperson proposed that a best practise model be devised for emerging contractors, which would then be monitored constantly and improved as time progressed. The model must then be checked in twelve months’ time to check the number of SMME’s that were assisted and empowered.

Dr Sibeko responded that there were perceptions in the industry that subcontracting was inferior, and they did not take kindly to subcontracting. She stated that her MEC had met contractors throughout the province to encourage them to grow via partnerships and joint ventures, and they indicated that they did not want to become "handlangers" or sidekicks. The other big challenge was that in instances in which the Department had compelled emerging contractors to partner with established firms, it had come across fronting by those emerging contractors. The Department had been informed by contractors that they were ‘tokens’ and that their services were not being employed by the established contractor, and thus no transfer of skills was taking place. This was a very serious problem.

She stated that her provincial department did not often blacklist contractors, but it was done on very rare occasions when contractors had misrepresented facts. The Department would then not deal with that contractor again. The Department remained mindful of the specific circumstances and shortcomings that each contractor was dealing with, and for that reason, it would then instead award it a smaller contract to which it would be better suited.

A further problem was that it appeared that emerging contractors ‘were emerging forever’, as people who did not appear to be financially disadvantaged at all, still tendered as emerging contractors. They had to undergo a paradigm shift to not look at money as a commodity that "would go rotten if you don’t eat it fast", and they had to be taught how to manage their finances and grow from one point to the other. This was a national problem. The policies were thus being abused.

Ms Ngqaleni stated that National Treasury was dealing with these problems, and the issues raised today would go a long way to addressing some of the problems with contractors. The model employed by the North West would be considered further. It was very clear that the contractors needed to have certain skills, and the three departments would have to work together. The channels of communication between the three departments had to be open to ensure that proper and accurate data were shared.

Mpumalanga Health Department briefing
Mr Gideon Lubber, Director of Management Accounting, extended the formal apology of the MEC who could not attend due to other commitments. He briefly outlined the data on the Mpumalanga Education Department’s conditional grants expenditure for 2004/5, as well as an assessment of the provision of the school nutrition, HIV/AIDS and infrastructure development conditional grants for 2004/5.

Discussion
The Chairperson noted that Mr Lubber had just confessed that the Mpumalanga Education Department began rolling out on infrastructure development only after being told to do so by the Minister.

Mr Lubber stated that he would have been in a better position to answer some of the questions if representatives from the Mpumalanga Public Works Department had been present.

Mr Sogoni questioned the viability of a bid committee, as referred to by Mr Lubber that would consider tenders. Clearly the intervention by the Minister indicated that that Committee was doing a disservice to the province.

Mr Lubber replied that the provincial legislature had requested that the previous Education and Public Works bid committees be revisited and that new Members be appointed.

Mr Hattingh stated that National Treasury had not approved the substitution of a tender board with a committee.

Mr Sogoni sought clarity on the funds that were not spent by the provincial department. r Lubber responded that the Department was in the process of requesting that the funds that were not spent be rolled over to the current financial year, whether committed or not.

Mr Robertson stated that the document circulated by the Mpumalanga Department was very scant on information, and Members could thus not make a comparative analysis of expenditure trends on these conditional grants.

Mr Lubber agreed that the report needed more data, but the invitation from the Committee did not clearly state what was expected from the provincial departments. The Department would definitely give more information in future.

Mr Hattingh stated that the quality of the reports that were submitted today were not acceptable. National Treasury had put a reporting format system in place for provinces, but the reports did not comply with the standards. National Treasury would ensure that the quality of reports improved, as the financial information had to be complemented by the non-financial data.

Mr Robertson asked Mr Lubber to indicate just how much of the equitable share was used to supplement the HIV/AIDS grant, as indicated in the presentation.

The Chairperson asked Mr Lubber to indicate what area of the equitable share was compromised, and how it impacted on that programme.

Mr Lubber stated that he did not have the information available to answer this question.

Mr Mkhaliphi asked whether the educators who received special training on HIV/AIDS were well-resourced, and whether they were in fact providing a valuable service to the community.

Mr Lubber replied that the allocation was R1.1 million. There was a programme within the department for Workplace HIV/AIDS, and the amount was taken from that programme.

The Chairperson asked Mr Benade to explain the statement in the presentation that some service providers could not be paid by the end of March because invoices were received late. He asked how this could be allowed to happen and whether the authenticity of those invoices could then be verified after the fact.

Mr Lubber stated that he did not have the information available to answer this question.

Mr Benade responded that this meant that the provincial department had either paid in advance for the service, or it had actually overspent by providing contracts for more than its allocated amount. He stated that he was sure the provinces would sort this out, or the Office of the Auditor-General might have something to say about the matter.

Invoices were a tedious task to manage properly because it involved thorough administrative work. Private enterprises had held back payment on the invoices as long as possible so the amount could gain interest in their accounts. Government had to therefore ensure that the invoice was correct and that it had the necessary resources to pay.

The Chairperson sought clarity on the decision to pay volunteers an R11 honorarium, as surely volunteers provided a service free of charge.

Mr Lubber stated that he did not have the information available to answer this question.

Mr Benade replied that the payment of the R11 had surprised the National Treasury. The country’s labour laws dictated that a person could not be employed for such a small amount, but the R11 was merely a token of appreciation for the service they provided. This was not however an initiative from the national Department.

The Chairperson did not understand how Mpumalanga could only spend 46% of its capital expenditure budget, when there were so many schools that needed infrastructure and provision of basic services. He asked Mr Lubber to explain how the provincial department planned to correct this problem.

Mr Lubber replied that his provincial department had a backlog of at least 4 000 classrooms. This did not mean however that children were sitting under trees, but meant instead that the existing classrooms were very overcrowded. It was true that there were many schools that needed infrastructure improvements. He stated that the Mpumalanga Education Department’s Deputy Director-General was suspended in 2004 for, amongst other things, failing to properly implement the province’s infrastructure development mandate. The SLA that was signed between the provincial Departments of Education and Public Works needed to be revisited. He stated that he would be in a better position to explain this if the provincial Department of Public Works had been present.

Mr Hattingh stated that National Treasury had no problem with a provincial department topping up a conditional grant, as long as it added value from a service delivery perspective. The current rules allowed for an 8% variation within programmes before and after the adjustment budget. This adjustment thus fell well within that allowance and would be legalised once it was brought to the attention of Treasury.

Mr Mkhaliphi stated that he would not be surprised if the educators engaged in a strike because the provincial departments had not paid them their backlogged salaries.

Mr Lubber replied that he had already indicated that the Mpumalanga Department had paid those educators in April 2005. The problem however lay with the formula used by SETA to calculate the payments, and a much smaller amount was transferred. The Department had done an audit so that the correct amount would be paid. It was hoped that the process would be finalised at the end of June 2005.

The meeting was adjourned.

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