Communications Department Expenditure: hearing

Meeting report

JOINT BUDGET COMMITTEE
22 June 2005
COMMUNICATIONS DEPARTMENT EXPENDITURE: HEARING

Chairpersons: Mr N Nene (ANC) [NA} and Mr B Mkhaliphi (ANC) [Mpumalanga]

Documents handed out
Department PowerPoint presentation
Department Strategic Plan 2005-2008
Committee draft Strategic Plan of Joint Budget Committee
Committee Third Quarter Expenditure Report
Draft Committee Report on Hearings with Departments of Public Works, Land and Health
Committee Report on Fourth Quarter Expenditure
Committee Annual Report, June – November 2004

SUMMARY
The Department of Communications outlined the background to their Strategic Plan 2005-2008; their medium term strategy to meet national strategic objectives; a breakdown of the 2004/2005 budget and Medium-term Expenditure Framework (MTEF) allocations; the reasons for the expenditure ‘spike’ in March 2005, and personnel challenges. The Committee requested the Department to provide its cashflow projections and explain its mechanisms to monitor the considerable allocations it had transferred to state-owned enterprises.

The Department was also asked to specify why its Strategic Plan did not make provision for its personnel needs, and clarity was sought on the roll-overs of R29 million and R24.9 million. The Committee expressed concern with the large allocation of R750 million to the South African Post Office (SAPO) since 2003/4, as it appeared to amount to ‘fiscal dumping’. Members questioned whether the Chief Financial Officer (CFO) had the necessary authority to assure the Committee that the mismanagement of SAPO funds would no longer occur, or whether this could only be given by the Minister of Director-General of Communications.

The Committee also adopted the following reports without amendment: the Committee Strategic Plan, the Committee Third Quarter Expenditure Report, the Committee Report on Hearings with the Departments of Public Works, Land and Health, the Committee Report on Fourth Quarter Expenditure and the Committee Annual Report, June – November 2004.

MINUTES
Mr Nene stated that the Committee was concerned that the Department of Communications had been underspending for the past few years, and had decided to call the Department to explain what appeared to be ‘fiscal dumping’.

Department briefing
The Department of Communications was represented by Mr Harold Mathabathe: Chief Financial Officer (CFO); Mrs Gerda Grabe: Chief Operating Officer (COO); and Ms Sigidikazi Petse: Acting Head of Ministry.

Mr Mathabathe tendered an apology from the Director-General and some of the Executive Committee members who were unable to attend the meeting as they were attending a planning session of government’s Social Cluster. He outlined the background to the Department’s Strategic Plan for 2005-2008, the context in which it was placed, the Department’s medium term strategy and the Department’s key contributions to meeting national strategic objectives. He also provided a breakdown of the Department’s 2004/2005 Budget, the MTEF allocations as well as the Department’s budget challenges.

March 2005 expenditure
Mr Mathabathe explained that the Department had spent about 50-60% of its Budget in March 2005. It received a once-off allocation of R750 million in the 2003/4 financial year intended to recapitalise the South African Post Office (SAPO). It was thus given to the Department as a conditional grant, on the condition that the Department, SAPO and National Treasury needed to devise a strategy that would ensure those funds were not used for the operations of SAPO. Before these funds could be committed SAPO was required to produce a Strategic Plan which would ensure that the funds would not be used to finance its operations. A Memorandum of Understanding (MOU) between the Ministers of Finance and Communications also had to be concluded, and upon signature the funds would be transferred. The MOU took two years to conclude and it was finally signed in February 2005, and the R750 million was then transferred to the SAPO. It might have looked like fiscal dumping but, as explained, it was not.

Personnel budget challenges
Mrs Gerda Grabe, COO, stated that the Department went through a major restructuring process in 2004 and the aim was to ensure that the Department had sufficient capacity in terms of the number of its staff with the relevant skills and expertise to deliver on its mandate. This led to an increase in the Department’s staff from about 300 to a staff complement of 540, but to date only 352 posts had been filled and the remaining 188 posts were still vacant. The filling of those posts was the challenge to personnel referred to in the presentation.

She stated that the presentation also indicated that no provision was made in the Department’s budget for ICT infrastructure, and referred especially to infrastructure for service delivery. Yet no provision was made for ICT infrastructure within the Department itself, and using ICT to improve the Department’s service delivery and effectiveness. The Department’s aim was to be a leader in enabling government to utilise ICT to optimise the capacity of the State.

Discussion
Mr Nene stated that the Committee had to be provided with the Department’s cashflow projections, as it had been omitted. This would provide a better picture of the Department’s spending forecast.

Mr Mathabathe responded that the Department had compiled cashflow forecasts, as required both by National Treasury and by the Public Finance Management Act (PFMA), and it submitted these together with its monthly reports to National Treasury. The documents would be submitted to the Committee.

Mr Nene asked the Department to explain whether it had put any mechanisms in place to monitor the considerable allocations it had transferred to State Owned Enterprises (SOEs).

Mr Mathabathe replied that the Department’s shareholder management unit was responsible for monitoring SOEs through a number of mechanisms. Firstly, the PFMA required SOEs to prepare Strategic Plans that had to be submitted to the executive for approval. The Department then ensured that those plans were incorporated into the shareholder compacts, which were signed by the Minister of Public Enterprises and the board of the SOEs. This laid the basis for the performance of the SOEs in a particular financial year, and was conducted before the transfers took place. The Department had gone a long way in ensuring that this occurred on an annual basis.

He stated that the Department also ensured that the SOEs’ financial statements were in order. It attended the their Annual General Meetings and ensured that they submitted their financial statements by the end of May. Significant progress had been made in this regard.

Mr S Asiya (ANC) [NA] noted that the Department’s total expenditure at the last quarter was 92%, whereas it was about 60% for the third quarter. He suggested that spending nearly 40% of its budget at the last minute amounted to fiscal dumping.

Mr Y Bhamjee (ANC) [NA] stated that the underspending had been a trend for a couple of years, yet the Department had not appeared before this Committee to provide a reasonable explanation.

Secondly, he asked the Department to explain why the measurable targets as well as the Strategic Plan had not made provision for the personnel needs of the Department. If the Department did not make adequate provision for personnel in its Strategic Plan; they had no right to lodge it with the Committee as a shortfall.

Mr Mathabathe replied that he would provide the Committee with a detailed written explanation of the history of the R750 million over the last three years. He stated that the R750 million had been allocated in the Department’s Medium Term Budget Policy Statement (MTBPS) in October or September 2004, and the amount therefore affected the 2004/5 financial year as well as the 2003/4 financial year.

The Chairperson asked whether the Department’s budget of R1.7 billion was in fact an inflated figure because, once the R750 million was transferred to SAPO, the Department’s actual budget would in fact be much smaller. Mr Mathabathe answered in the affirmative.

The Chairperson asked whether the Portfolio Committee on Communications had raised concerns with the delay in the signing of the Memorandum of Understanding (MOU). Mr Mathabathe responded that the Portfolio Committee had posed the question to the Department.

Mr Asiya asked the Department to explain its roll-overs of R29 million and R24.9 million. These were serious problems because in terms of the PFMA such roll-overs meant underspending by the Department.

Mr Mathabathe replied that roll-overs were the prerogative of National Treasury. It remained a challenge because of the change from a cash to an accrual accounting system. However, only R29 million in a budget of R250 million was rolled over, which was a miniscule amount. There were also external factors that caused the roll-over, such as contractors or service providers who did not perform timeously with the result that payment had to be delayed.

Mr Asiya asked the Department to explain whether its shortage of personnel was due to the fact that it did not properly budget for additional personnel.

Mr Mathabathe replied that the Department had just recently received the Medium-term Expenditure Council (MTEC) guidelines and the submissions had to be submitted by August 2005. The Department had finalised its restructuring process in November 2004 (after the MTEC process) and thus that window period had closed. The Department was therefore left with the current shortfall. The Department might not even be able to rectify the problem this year. He stated that he had recommended to the Minister that the Department look within its allocated baseline to make up the shortfall in personnel.

Mr Asiya stated that ICT was the very nerve center of the Department and if it did not have the necessary funds to provide such services, he questioned the effectiveness of the Department.

Mr Mathabathe agreed with Mr Asiya. The COO had joined the Department to review its operations, and was recently joined by the Government Information Technology Officer (GITO). A lot of work was being done to ensure that ICT became the nerve center of the Department.

Mr Bhamjee asked whether the Department’s initial request for funds from National Treasury was governed by its 2003/4 Strategic Plan or by its 2004/5 Strategic Plan. If the latter governed it, then the amount ought to be clarified for the Committee to understand the Department’s measurable objectives.

Mr Mathabathe responded that this was due partly to the limitation placed on the Department by National Treasury financing options, and partly due to the time at which the Department’s Strategic Plan was finalised.

Ms B Dambuza (ANC) [NA] asked the Department whether it would review its Strategic Plan and when it would be submitted to National Treasury.

Mr Mathabathe replied that it would be not reviewed soon, as this was usually done after the President’s State of the Nation Address.

Mr Asiya asked whether this Committee was able to hold the CFO accountable with regard to the MOU, and questioned whether the Minister or Director-General should not give that undertaking. He questioned whether this Committee was being taken seriously.

Mr Mathabathe replied that he would convey the sentiments to the Director-General, and reiterated his apology for the absence of the other senior officials.

Mr Asiya sought clarity on the accounting model being used. Mr Mathabathe responded that there were definite steps that had to be followed when migrating from the cash to the accrual system "otherwise you will burn your fingers". These gradual steps were not "stolen" from other jurisdictions, as he believed that South African accountants were world leaders.

Mr Asiya stated that the persistence of the roll-overs was a concern.

The Committee Researcher believed Mr Bhamjee was not so much concerned by the under-expenditure over the past year, but rather with the lack of planning for expenditure by the Department. It appeared that a sum of R750 million was transferred each year during March.

Mr Mathabathe replied that the SAPO had been exempted from the South African Reserve Bank (SARB) regulations to take deposits, and once it took deposits from the public, it was under an obligation to ensure that those deposits were kept safe as the funds did not belong to the SAPO. However, the SAPO executive authority in place three years ago, actually used the depositors’ funds to finance the operations of the SAPO, which was a very serious governance and integrity issue. The result was that the SAPO was returning losses and they needed to be bailed out. Once the funds were made available, after consultations with National Treasury, it was important to ensure that that kind of abuse did not happen again. The funds had to be ringfenced, and this was achieved by the MOU that took about two years to conclude.

He was thus able to provide the Committee with the assurance that that kind of abuse within the SAPO would no longer take place, as the MOU was now in operation. The R750 million had been transferred to the SAPO, but much work was still being done.

He explained that the R750 million reported in this year was the same R750 million reported in the last two financial years. It was allocated to the Department in 2003/4 because of the SAPO problem, yet it could only be transferred during 2005/6 due to the delay in the conclusion of the MOU. It was thus the same sum of money, and not different sums.

Mr Nene asked the Department to explain how that amount was spent at the end of the first and second financial years.

Mr Mathabathane replied that it was reflected as a roll-over in the first financial year because it was then that the Department requested the R750 million as a roll-over, and it was again reflected as a roll-over in the 2004/5 financial year because the Department was not yet able to transfer those funds, as explained.

The Chairperson thanked the Department for its input, and said the Committee would follow up the issues raised during the meeting.

Committee Draft Strategic Plan
The Committee adopted the Report without amendments

Committee Third Quarter Expenditure Report
The Committee adopted the Report without amendments

Draft Committee Report on Hearings with Departments of Public Works, Land and Health
The Committee adopted the Report without amendments

Committee Report on Fourth Quarter Expenditure
The Committee adopted the Report without amendments

Committee Annual Report June – November 2004
The Committee adopted the Report without amendments

The meeting was adjourned.