Preliminary Budget Outcomes of Conditional Grants: Provincial Treasury briefings

Meeting report

FINANCE SELECT COMMITTEE
14 June 2005
PRELIMINARY BUDGET OUTCOMES OF CONDITIONAL GRANTS: PROVINCIAL TREASURY BRIEFINGS

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

Documents handed out:
PowerPoint presentation by Gauteng Provincial Treasury
PowerPoint presentation by Free Sate Provincial Treasury
PowerPoint presentation by North West Provincial Treasury
PowerPoint presentation by Northern Cape Provincial Treasury
Northern Cape Memorandum to Select Committee
Northern Cape Provincial Treasury briefing summary

SUMMARY
The Committee was briefed by provincial Treasuries on conditional grants. All provinces reported that there had been underspending in some respects. Gauteng had a problem of slight overspending. In the Northern Cape, underspending had mainly occurred in Health, Social Development, Transport, Roads and Public Works and Agriculture. In some cases, underspending could be attributed to delays in Departments’ own tender processes. The North West Treasury felt that there was a lack of proper planning by the departments. It acknowledged that it had problems with the spending of conditional grants, but had taken steps to improve the situation.

Members felt that the provinces should prioritise spending on agriculture, school and child support extension. The issue of housing subsidies should also be prioritised. The Free State had a big problem in this respect. Most provinces still had capacity problems. It was difficult to understand how departments were underspending if they had approved business plans.

Provincial Treasuries had not been exercising the powers vested in them in terms of the Public Finance Management Act (PFMA) to ensure that spending occurred. The PFMA had empowered Treasuries to investigate issues that were hampering service delivery. There had been no benefits from multi-year budgeting because Departments still waited until the budget had been passed in the legislature before drawing up business plans or putting out tenders.

MINUTES

Northern Cape Treasury briefing
The Northern Cape MEC for Finance, Mr P Dikgetsi, was accompanied by Mr S Mokoko, Head of Department. Mr Dikgetsi said that the briefing would indicate the position as of the 31^st of March 2005 and would indicate the possible reasons for underspending and what the Provincial Treasury was doing to address the matter.

Mr Mokoko made the presentation. (Please see document attached). The total expenditure amounted to R4.46 billion or 96% of the Adjusted Budget. There was underspending of R185 million. The underspending occurred in all Departments but the most underspending occurred in the following Departments: Health, Transport, Roads and Public Works, Housing, Finance, Local Government and Agriculture. Capital expenditure and conditional grant expenditure respectively accounted for R63.8 million and R84.1 million of the R185 million underspending. Personnel, transfer and subsidies, goods and services accounted for R37.1 million.

The total conditional grant expenditure was R585.4 million or 87% of the Adjusted Budget. There was underspending of R84.1 million or 13%. Health represented R20.9 million, Social Welfare R29.2 million, Agriculture R18.5 million and Housing and Local Government R14.3 million. The following grants recorded material underspending: Agricultural Disaster Management, Local Government Capacity Building, Hospital Revitalisation, Regulation 11 Backpay and Food Emergency Relief.

The Department of Agriculture had given late receipts for funds for the Agricultural Management grant. Certain projects under the Land Care programme were approved only in February 2005. It was expected that the Department would spend the whole amount by the end of June 2005. The Department also experienced problems due to lack of capacity. It could only spend 32% of the provincial infrastructure grant.

The Department of Education underspent due to the non-filling of district posts for the administration of the food nutrition programme. The Department had almost spent the entire amount allocated to it. He reminded Members that the Food Nutrition programme had migrated from one Department to another. All grants under the Department of Health had spent 100% of their allocated amount except the Hospital Revitalisation Grant that had spent 74%. The grant had experienced some delays in the construction process.

The Department of Housing and Local Government had underspent all its grants. The Local Government Capacity Building fund could only spent 56% of the allocated amount. The Department had underspent as a result of delays in the appointment of consultants and delays caused by the tender processes. All grants under the Department of Social Development except the Food Emergency and Regulation 11 Backpay spent 100% of the amount allocated. With regard to the Food Emergency grant, the national Department had already started lobbying Treasury so that the amount could be rolled over. Provincial Treasuries understood very well that there were people who were going without food and the money could help them. The Northern Cape Treasury would favourably consider the rolling over of the remaining amount.

The tenders for the Food Emergency grant were only awarded in February 2005. The National Department had caused the delays in the tender processes. There were no claims under the Regulation 11 Backpay. The money for the Regulation 11 Backpay was received on 31 March 2002 (last day of the 2001/02 financial year). Consequently, the Department could not spend it. The money was rolled over to the next financial year and the Department could only spend 38% of the amount. The balance was again rolled over to the next financial year because the Department had said that there were people who were still coming forward. The Department could only spend R12 million of the rollover and R20.1 million remained. Only 4% of the remaining amount had been spent in the last financial year. The Provincial Treasury was of the view that there were no longer beneficiaries in terms of the Regulation or court order and therefore the money should go back to the fiscus.

Mr Mokoko said that Departments had indicated that they had spent 100% of the Provincial Infrastructure grant. However, an analysis by the Provincial Treasury based on the annual financial statements that were submitted on 31 March 2005 revealed that the actual expenditure was 86%.

The Provincial Treasury did not implement any of the conditional grants explained above. The role of the Provincial Treasury was to monitor the implementation of these grants and to report on the performance of the different grants. During the current financial year, the Provincial Treasury would advertise and appoint a person with construction and building industry skills and knowledge. The person would assist in the monitoring of capital projects to ensure that these projects were implemented in an effective and efficient manner in order to reach the desired objectives. This move would enhance the capacity of the Provincial Treasury to monitor the implementation of the capital projects.

Most of the reasons provided by the Departments had indicated that the state of planning was generally poor in line function Departments. There seemed to be a need for line function Departments to have strategic planners who would drive and continually assess the level of co-ordination between planning and budgeting to ensure that resources were correctly aligned to the planning for various projects. The Chief Financial Officers would take over the planning responsibilities in Departments that did not have strategic planners.

During the current financial year, the Provincial Treasury would, in partnership with the National Treasury, be rolling out the Infrastructure Development Improvement Programme (IDIP) Toolkit to all Departments with provincial Infrastructure grants in order to assist Departments to better plan for the delivery of infrastructure in the province. This approach would be supported by the deployment of technical assistants to the affected Departments. Last year the Treasury had approached the Department of Transport to say it would not be able to spend R60 million of its budget, and that Treasury would take the money and give it to another Department that had the ability to spend. The Department was unable to argue with Treasury because the Toolkit had clearly indicated that the Department had projects that it had budget for and were still in pre-tender stages. The Department had not done any work to ensure that the projects would be kick started in the 2004/05 year.

The MEC said that overall there had an improvement on spending and the province had stayed within the budget allocated.

Discussion
Mr E Sogoni (ANC) (Gauteng) said that it was important to understand the lines of accountability for the grants. He asked if the grants went through Provincial Treasuries or straight to Departments. He also asked if the Provincial Treasuries were aware of amounts received by each Department and therefore able to track expenditure. It was important to know if any problems in the accountability lines had been reported to the National Treasury. Some of the reasons for underspending were due to tender processes and delays in the appointment of consultants. He asked if the problems were with the relevant Departments or the Departments of Public Works. During the Committee’s engagement with some Departments it seemed that there was a capacity problem. He asked if this was being addressed. Funds had been allocated because a need to do so had been identified. Some people were poor and a number of school kids depended on meals from schools. The Hospital Revitalisation and Human settlement programmes also had problems. National Treasury should give direction on what had to be done in respect of Regulation 11. He wondered if National Treasury was not dumping money if it only allocated it on the last day of a financial year. The money had not been spent for several years. He asked if continuous rollovers were allowed.

The MEC replied that Members would recall that the Provincial Treasury had capacity problems. It had recently appointed a Head of Department and advertised for new management posts that it hoped would be filled by 1 August 2005. He took responsibility for whatever weaknesses there were in the province.

With regard to Regulation 11, an official from National Treasury replied that the issue had been brought up before the end of the 2004/05 financial year when Provincial Treasuries had requested permission to use the money. The issue could not be resolved. There had been problems with establishing the correct amount of underspending by provinces. National Treasury would give direction on how unspent conditional grants funds for 2004/05 should be used as soon as it had accurate and audited amounts of under expenditure.

Mr Robertson (ANC) (Eastern Cape) said that the presenter had given the aggregate expenditure figures for the Department of Transport, Roads and Public Works. Last week, the National Treasury had no such figures. He asked why this was the case. The Department of Housing and Local Government had, in relation to the Municipal Infrastructure Grant (MIG), spent 81% of the R1.4 million allocated and the difference had been regarded as a saving. He asked the presenter to explain why this had been regarded as a saving.

Mr Mokoko replied that the understanding was that the project had been completed at less than what had been initially estimated. This was why the difference was said to be a saving and not underspending in the sense that the Department had not been able to spend the entire amount.

Mr Z Kolweni (ANC) (North West) was unsure what the MEC had intended to convey when he said that all Departments had spent within their allocation. Only two Departments had spent over 90%. The Department of Social Development had rollovers upon rollovers.

The Chairperson said underspending occurred in all departments.

The MEC replied that the province had experienced the problem of overspending over the years. The statement to the effect that the province had managed to spend within the budget was intended to convey the message that the trend of overspending had been curbed. The Premier had been very active and strict about Departments not overspending. The Premier had also sent SMSs to Heads of Departments to warn that overspending would not be tolerated.

Mr Mokoko replied that Finance had not spent the entire budget allocated to it because they had made provision for a contingency reserve (R9 million) to cover unexpected contingencies. The money was not re-allocated to the Department. The money was targeted to be part of the money to be used in repaying unauthorised expenditure. The second reason was that given the long history of overspending and the need to operate an overdraft during the course of the financial year, money had to be set aside to pay interest on money that was being used. During the course of the year, Treasury had decided to use a better market instrument that resulted in the Provincial Treasury paying less interest on loans raised.

Mr D Botha (ANC) (Limpopo) said that there was a trend of underspending by most Departments and this was a cause for concern. The presenter had indicated that an amount of money had been taken from the Department of Transport and given to another Department. He was of the opinion that this was not a good thing to do because it might lead to people on the ground suffering. Monthly reports had been received regularly from receiving Departments and certified business plans had been submitted to National Treasury. He asked if the Provincial Treasury was able to see that the underspending trend was continuing and if there was anything it could do about this. There must be a provincial Lekgotla wherein Departments would have discussions on underspending. Money would be taken away if Departments were not spending unless there were valid reasons and the whole province would suffer.

The MEC replied that the one Department that had projected overspending in 2004/05 was Social Services in relation to the Social Assistance grant. During the adjustment estimates in November, the province had to adjust the budget downwards in order to obtain savings so as to deal with the problems of social services. The Executive Council had been co-operative in this regard. There had also been a number of associated problems. It was not a pattern of underspending. There had been some improvements especially when the equitable share was considered. The problems with conditional grants were related to the tendering processes. For instance, the allocation of tenders by the National Department for social services had presented many problems. The provincial Department of Social Development was aware of the need to spend but tenders went out very late. He acknowledged that there were hungry people who needed to be taken care of. It was difficult for the province to deal with the matter given that control was vested in the National Department.

The MEC agreed that they had received monthly and quarterly reports from Departments. Quarterly reports had consistently been taken to the Executive Council so as to make it aware of the prevailing situation. Three weeks ago, all Heads of Departments were called to an extended Executive Council meeting where issues around non-compliance with deadlines for submission of financial statements were raised. There had been some unintended consequences due to the consistent pressure for people not to overspend. Some of the Heads of Departments had been nervous and this had created problems. Conditional grants were a problem in their own.

Mr Sogoni noted that there had been some delays by a National Department in tender processes in relation to Food Emergency. He asked which Department administered tenders for the grant.

The Chairperson asked what the implications of underspending were for service delivery. Recently there had been protests over lack of service delivery. All Departments in the province had underspent although they had communities who were in need of services. He also asked what the Province would do with the unspent money and if the MEC did not regard underspending as gross negligence given the dire need for services.

The MEC concurred with the Chairperson that underspending could be viewed as gross negligence in some respects. Some reasons for underspending had been acceptable. For instance, it would have been very difficult for Departments to spend all their money given that some had received the money in January 2005. Underspending was a problem in cases where money had been allocated and transferred in time and had not been spent. The Provincial Treasury had raised the issue with the Departments concerned. It would address the issue going forward.

The Chairperson said that the Committee would have to engage with the Departments that had been guilty of late distribution of funds.

The Chairperson said that the convergence of information was important. The Transport, Roads and Public Works Department did not have any budget reflected or actual spending in terms of the National Treasury report. The Committee was not sure if there was over or underspending in the Department.

Free State briefing
The MEC, Mr P Makgoe, briefed the Committee on conditional grants. Provincial Treasuries had not been exercising the powers vested on them in terms of the Public Finance Management Act (PFMA) in order to ensure that expenditure happened in Departments. The PFMA had empowered Treasuries to go and investigate the things that were hampering service delivery. He said that there had been no benefits from multi-year budgeting. There had been Departments which still waited until the budget had been passed in the legislature before drawing up business plans or going on tender. These were some of the things that the Medium Term Expenditure Framework had been trying to obviate.

He reported on the transfer and actual expenditure on all conditional grants that formed part of the 2004/05 financial year's adjusted budget. The original budget for conditional grants was R1.6 billion as per the Division of Revenue Act and the 2004/05 Budget Statement. The above 2004/05 conditional grants allocation of R1.6 billion constituted 12.9% of the R12.5 billion provincial budget. Based on the Government Gazette dated 08 December 2004, one new conditional grant was introduced for the Department of Agriculture, namely Agricultural Disaster Management amounting to R17 million. Furthermore, an amount of R1.3 million for the Land Care Programme: Poverty Relief and Infrastructure Development was provided for through the adjustment budget process as an additional allocation to the Department of Agriculture, resulting in an adjusted allocation of R3. 37 million in respect of the above grant. Over and above the additional allocation received by the Department, rollovers amounting to R190 million had been approved by the Executive Council and ultimately formed part of the 2004/2005 adjustment budget.

The total available cash that should have been transferred and received by the Province based on the adjusted budget was R1.630 billion. Cash transferred from the National Treasury to the Province was R1.613 billion. The difference between the total available funds for 2004/05 and cash transferred to the Province was R17 million. The difference related to the two Health Conditional Grants: Comprehensive HIV and Aids and the Hospital Management and Quality Improvement in respect of which the entire budgets had not been transferred. The main reason for not receiving the entire budgets for the two conditional grants was slow spending, which resulted in the National Department of Health withholding the remaining funds of R17 million.

The preliminary expenditure as at 31 March 2005 was R1.5 billion or 82.8% of the total budget. The Department of Agriculture spent only 10, 6 % of the adjusted allocation for Conditional Grants of R52 million and under expenditure accounted for 89.4%. Non-spending with regard to the Land Care Programme and Agricultural Disaster Management conditional grant could be attributed to the process of the registration of applicants and the assessment of the measure of disaster which started immediately after the adjustment budget was introduced in the Legislature during November 2004. The appointment of contractors was delayed by the mandatory use of Black Economic Empowerment suppliers and transport contractors.

The reason for not spending on most of these grants was the result of a lack of readily available investment opportunities in rural farming communities, a lack of project implementation skills in the department, as well as a moratorium on spending early in the financial year. The process was now fully underway and the department was in a position to spend all of the available funds in the 2005/06 financial year. The European Union funds received for the past five years had complicated spending in the Department of Agriculture. The spending on this grant had been very problematic and there had been some discussions with National Treasury to see how to get out of the contract. The contract was not benefiting the province. The whole spending was in contrast with the PFMA. The province could have a much bigger impact if it was using its money only than when using the EU grant.

Education's adjusted conditional grant budget inclusive of Provincial Infrastructure amounted to R112 million. Preliminary actual expenditure of R98 million accounted for 87% of the above adjusted conditional grant budget and the under expenditure share of the said budget was 13%. With regard to the Department of Social Development's adjusted conditional grant budget for the 2004/05 financial year, preliminary under expenditure amounted to R235 million or 75% of the revised conditional grant allocation. The non-spending on Food Emergency Relief Grant was as a result of the late awarding of the tender by the National Department of Social Development. The Department of Sport, Arts, Culture, Science and Technology had virtually spent their entire Mass Sport and Recreation Participation Programme budget with actual expenditure recorded at R971 000 or 97%. Under expenditure amounted to R29 000 or 3%.

The Department of Health had spent R596 million or 90.2% of its conditional grants budget inclusive of R35 million for Provincial Infrastructure. Consequently, underspending was recorded at R64 million or 9.8% of the total available budget for conditional grants. Although the figures indicated under expenditure of 9.8 %, the Department had amended its figures in line with the Pre-audited Financial Statements and the total expenditure came to 97% of the total available budget.

National allocation of conditional grants in respect of Local Government and Housing had increased substantially by R170 million or 40% from the initial allocation of R429 million to R599 million due to the approved provincial rollovers. The significant growth of 40% had put an extra burden and responsibility on the Department to spend its adjusted conditional grant allocation of R599 million. With the exclusion of rollovers, the actual expenditure of R491 million accounted for 114% of the above initial allocation, indicating that had it not been for rollovers, the Department would have spent their entire allocation.

Preliminary actual expenditure accounted for 82% of the adjusted conditional grant allocation, resulting in under expenditure of 18% or R109 million. The under expenditure remained a challenge to the department for the 2005/06 financial year because it constituted the biggest portion of their rollover request to be spent in the current financial year if approved. The Department Public Works, Roads and Transport received R84 million in respect of the Provincial Infrastructure grant. The actual expenditure of R81 million accounts for 97% of the above adjusted conditional grant budget and the under expenditure share of the said budget was 3%. The Department had adjusted its expenditure figures in line with the pre-audited financial statements to indicate that the entire amount had been spent.

Provincial Departments submitted their approved business plans directly to the National Department responsible for each grant who in turn submitted it to National Treasury. Various business plans had been sent to National Treasury. It remained important for Provincial Departments to succeed in spending their entire conditional grants allocation as such grants were allocated to address specific areas of service delivery or operational focus. Expenditure plans in respect of conditional grants, furthermore, formed part of published strategic plans and under-expenditure thus compromised the credibility of strategic plans. Evidence, in most cases, suggested that Departments had found it difficult to spend huge rollovers of conditional grants, together with new allocations, which re-emphasised the need to fully utilise conditional grants in the year in which they had been allocated.

Various factors underlay underspending on conditional grants and all the causal factors would need to be addressed to improve performance on conditional grant expenditure. Some of the important factors included the availability of credible expenditure plans to fast track expenditure on roll-overs, without delaying the implementation plans for new conditional grant allocations; the approval of roll-overs of conditional grants early in the financial year; and more effective ongoing assessment, evaluation and monitoring of performance in respect of conditional grants throughout the financial year.

Discussion
Mr M Robertson (ANC) (Eastern Cape) said that the Free State province had in the past had a rollover of R190 million and this was a lot of money. He congratulated the MEC for work that had been done in the province.

Mr Sogoni said that spending should not be a problem given mulit-year budgeting. There continued to be underspending. The DORA had made it clear that funds could be withheld if there was underspending but it seemed that there was a lack of implementation of the Act. The Department of Local Government and Housing had rollovers and the money had not been spent. This would have been understandable if the province was saying that people had houses but everybody knew that this was not the case. Monthly reports had been submitted but one was not sure if provincial Treasuries did anything with the reports.

The MEC replied that the spending of the Department of Agriculture would never improve unless the issues around the EU grant had been resolved. Two-thirds of the expenditure was supposed to be paid by the EU and one-third by the Department. One must make provision for this in the budget. He could not remember a year where the Department had been able to spend over R30 million. He had engaged the MEC for Agriculture about stopping this grant. In 1994 South Africa had received a grant from Japan and Ministers had decided not to take the money. This had invited bad comments in the press. The details of the funding had revealed that some of the tenders had to happen in Japan. The EU funding was similar. Agriculture was not a cheap business. There was no reason why the Department had not spent CASP the way it was supposed to.

He agreed with the Member on the issue of the implementation of the law. Departments were acting as if they were helpless whereas the law had given them the power to do certain things. There was a need for support by the Executive Council. The Premier would give the necessary support.

The Provincial Treasury did receive reports from Departments. Many people had been with the Departments for many years and should have had a sense of how long it took to build a one kilometre road, for instance. Treasury was sensitive to the issue of Chief Financial Officers. It was clear that there was a direct relationship between the absence of a Chief Financial Officer (CFO) and poor reporting. Two departments (Social Development and Economic Affairs) did not have CFOs. The MEC had written letters to the MECs of the two Departments asking when they would appoint CFOs. They had since responded to this.

Mr Kolweni said that the Committee was comfortable that the MEC had committed himself to taking action in relation to expenditure trends.

The Chairperson said that both MECs from the Northern Cape and Free Sate provinces should prioritise spending on agriculture. School nutrition should also be prioritised. The issue of the quality of nutrition provided was essential. There was no national norm on the quality. At one school in Mpumalanga province, food was prepared in a shack erected at the back of the school. There was no fridge and storage was not up to standard. The Free Sate should also prioritise the issue of child support. All provinces should also prioritise food emergency. The Free State had tertiary services in the form of hospitals. There seemed to be trade offs between provinces. The Free Sate had the Phelonomi and Universitas as referral Hospitals. The question was whether the Eastern Cape province should build similar hospitals or simply refer their patients to Free State. There should be trade offs in the interest of the nation. The issue of housing subsidy should also be prioritised. The Free State had a big problem in this respect.

The MEC accepted criticism and input on food emergency. There was a need to dig deeper in relation to the child support extension so as to be able to understand what was happening. The change of both the MEC and Head of the Department had contributed to the problems. On the issue of housing, he said that the biggest problem was not subsidies but incomplete houses. The province would investigate how it was possible to build half a house but get the whole amount for the house. He would come back to Committee on this. He had been told that people were supposed to be paid depending on the stages of completion but some people had managed to get full payment before full completion.

North West briefing
The MEC, Mr D Africa, briefed the Committee. Mr E Abraham and Mr P Tjie (Superintendent General) accompanied him. The Superintendent General briefed the Committee. (Please see document attached). A Sub-directorate had been established to monitor infrastructure including conditional grants. Early warning systems were being used to report deviations on spending on a monthly basis. Departmental CFOs were responsible for analysing over/ under expenditure and for providing reasons. The underspending had occurred as a result of Departments not being able to plan properly and tender on time. Procurement or tendering responsibilities had been assigned to Departments.

There was some underspending in respect of the School Nutrition programme because the Department of Education did not have enough time to appoint officials to manage the grant when the function was transferred from the Department of Health. The Department of Local Government and Housing experienced problems due to lack of planning capacity in municipalities. The province had established a Budget Oversight Committee (BOC). Quarterly meetings would be held with Departments and public entities and cash appropriation would be based on each Department’s ability to spend.

National Treasury had delayed the first instalment of the Infrastructure Conditional Grant and it was only received during July 2004. Forensic audits, planning and tender processes by Departments had delayed the start of projects and the appointment of consultants as these projects were held back for investigation. The splitting and merging of some Departments had resulted in major disruptions of payments and planning. New staff members were appointed to assist with payment processing in merged Departments and this resulted in delays. The province also had problems in relation to attracting and retaining qualified personnel. It also faced problems as a result of the excessive use of consultants. There was no evidence that consultants had transferred skills to anyone. There were also problems as some municipalities had seen the offer for assistance by the provincial government as interference. Municipalities also did not have uniform financial systems.

The MEC said that the province would exercise tight control on the issue of rollovers. Departments would have to strongly motivate why they should be allowed rollovers. The Premier had said that if a Department was unable to spend and was affecting the province’s delivery plans, the money would be given to another Department that had the capacity to spend in line with the plans.

Discussion
The Chairperson said that the North West was clearly one of the provinces that the Committee should visit. It had a number of Departments that were "in the intensive care unit" in terms of underspending. The Committee should prioritise the province. It would be helpful to interact with the Budget Oversight Committee and the Premier’s office. It was important to look at the kind of capacity available in the Premier’s office so as to see if the office could make the required interventions.

Mr Robertson said the document handed out had no figures on Early Childhood Development. He asked the MEC to explain this.

Mr Tjie replied that the blank spaces in the document had to do with the timing of the receipt of money. Gaps meant that nothing had been received.

Mr Sogoni was impressed by what the province was doing in order to turn the situation around. He asked how the Budget Oversight Committee was constituted. Various comments had been made on the late submission of business plans and it seemed that this was a problem across provinces. There was a need to look at improving this. The Medium Term Budget Policy Statement was approved early in September to give an idea of what would happen. It was disappointing to find people still not ready by April. It was not clear what percentages the underspending amounts translated into. He held the view that housing was a provincial competency. The blame for lack of spending on housing had been shifted to municipalities. He asked if the municipalities had the necessary capacity. Municipalities could only be accredited if they had capacity to spend. There was underspending in important departments. There were a number of child-headed households who expected support from the government. He agreed that there was a need to visit the province. Some people were "getting away with murder".

The MEC replied that the BOC was composed of the big budget Departments and was chaired by the MEC for Finance. It met quarterly to look at what was happening in various departments. A few municipalities that had been accredited had the accreditation taken away. The Department of Local Government and Housing had developed its own approach of interacting with municipalities. It was the responsibility of Departments to ensure that funds were spent. The challenge was also to look at the Human Settlement Programme. The question was how the Department would ensure that municipalities played direct roles despite that they had not been accredited.

Most Departments had CFOs but they would be the first to report about capacity even though they had been taken to training. Maybe the real issue was their own performance. It would be useful if more action were taken on lack of performance, particularly around expenditure. It was only recently that the Department of Social Development had a Head of Department. It was hoped that there would be some improvement in the future. Departments that did not spend would not be given money. The difficulty was that there was financial legislation that prescribed what had to be done but there were also programmes that had to respond to community needs. The challenge was one of integration at both national and provincial levels. Competencies that impacted on people might be lacking at provincial level and this impacted on delivery. The transfer of money at the end of the financial year was also a cause for concern.

Mr Tjie apologised for the absent percentages. Health had underspent their conditional grants by 21%, Education 15%, Local Government 24%, Social Development 24% and Infrastructure 14%.

Mr Kolweni said that business plans were submitted directly to national Departments. He asked if this process was working well. Some challenges that the province was facing had indicated the need for political commitment. For instance, local government regarded assistance as interference. There was also an excessive use of consultants.

The MEC replied that business plans had been submitted on time to national Departments. Sometimes the manner of interaction between national and provincial Departments was problematic. The notion of business plans was good because it gave an indication of what would be needed for a particular activity. The problem was systematic and how quickly the plans were sent. Delays caused problems in implementation. More interaction between national and provincial Departments was important.

He said that all challenges required political commitment and there was no one in the Department who was not politically committed. Many provinces had raised issues of capacity and underspending but this did not take away the fact that there was commitment. There was a need to do more in the various Departments. The turnover of senior staff affected the manner in which money was spent.

The MEC said that the use of consultants denied Departments the ability to retain and improve skills. There was no proof the consultant had transferred skills to anybody. The question was why Departments continued to use consultants if they had a full complement of staff. In some cases the use of consultants indicated problems of staff performance. Departments should not heavily rely on consultants.

Gauteng briefing
Ms B Kunene (Head of Department of Finance and Economic Affairs) made the presentation. (Please see document attached). She apologised on behalf of the MEC who was out of the country.

Gauteng’s problem was not underspending but slight overspending. As a percentage of the Adjusted budget it had overspent by 0.2%. Major overspending in the Child Support Grant occurred as a result of the constant growth in beneficiary numbers due to migration to the province. The Comprehensive Agricultural Support and Comprehensive HIV/AIDS grants had overstated expenditure and this was the cause of overspending in the two grants. The Hospital Revitalisation grant had been underspent as a result of late approval of redirection of funds for spending on medical equipment for the Pretoria Academic Hospital. The lengthy procurement processes delayed the spending of the funds. With regard to the housing subsidy, technical problems with the Basic Accounting System had resulted in some payments not being processed. Under the provincial infrastructure grant, unspent funds had been committed to four health institutions in the province.

Discussion
The Chairperson asked the presenter to explain the expenditure on roads. He wondered if the money had been dumped somewhere. Public Works and Roads had spent 1% in nine months but had then managed to spend 103% in two months. It would be interesting to know the people to whom funds had been committed. It would also be interesting to know if invoices that had been submitted very late were genuine invoices. The North West should investigate underspending on roads. The Free State had a huge project called Phakisa and more than R500 million had been spent on it. There was a huge rollover in terms of the Gautrain project. He asked if there would be value for money in the project and if it would not be a white elephant in the long run. People were still excited about the 2010 FIFA World Cup.

Ms Kunene replied that the project was not only a provincial project but also national. The project formed part of the national Integrated Transport Plan. The value for money question came right at the beginning when doing project analysis and feasibility.

The meeting was adjourned.