Health Conditional Grants & Capital Expenditure: Limpopo, North West, Western Cape, Free State

NCOP Finance

11 October 2005
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Meeting Summary

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Meeting report

FINANCE SELECT COMMITTEE

FINANCE SELECT COMMITTEE
12 October 2005
HEALTH CONDITIONAL GRANTS AND CAPITAL EXPENDITURE: LIMPOPO, NORTH WEST, WESTERN CAPE, FREE STATE

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

Documents handed out
Presentation by National Treasury
Presentation by Limpopo Department of Health
Presentation by Western Cape Department of Health
Presentation by North West Department of Health
Presentation by Free State Department of Health

SUMMARY
National Treasury said that the available data suggested that underspending was continuing. It was hoped that things would improve as time went on. One would have expected the figure to be just under 25% after three months of the year. Spending in most departments had kicked off slowly during the first quarter. However, the second quarter figures had shown some improvement. All departments agreed with the figures presented by National Treasury.

The relationship between provincial departments should be strengthened so that the issue of procurement could be speeded up. The Committee should meet with the provincial departments of Public works when conducting its oversight visits.

The Western Cape projected an overspending on the HIV/AIDS grant. The scaling up of anti-retroviral treatment had been quicker that expected. It was envisaged that there would be just over 11 000 patients but the figure was to reach 15 000 by March 2006.

MINUTES
Presentation by National Treasury

Dr Mark Blecher (Director) represented National Treasury. He outlined the spending trends of provincial departments of Health on conditional grants. He focussed on spending during the first quarter of the financial year. (See PowerPoint presentation). The key message was that the overall expenditure on health was good last year but there were significant problems on capital expenditure and conditional grants. It was still early in the financial year and the question was whether the trend of underspending in capital and conditional grants was still continuing. The available data suggested that underspending was continuing. It was hoped that things would improve as time went on.

He said that the overall provincial expenditure stood at 22,3% of the total budget. One would have expected the figure to be just under 25% after three months of the year. Limpopo province had spent only 19% of its total budget. The province had received some increase in its budget and the inability to absorb the additional budget was a cause for concern. It was hoped that things would improve overtime. Capital expenditure often did not show early but given the history of underspending, the Committee should be aware that a problem might be developing. After three months of the financial year, the Eastern Cape and the Free State provinces had already indicated that they would underspend by R82 million and R40 million respectively. One could conclude that there would be underspending on capital expenditure.

Dr Blecher said that there was a very slow spending of conditional grants. Only 16,5% of the HIV/AIDS grant and 12% of the Hospital Revitalisation grant had been spent as at the end of the first quarter. It looked like the problem experienced last year was persisting. Five provinces had spent less than 10% of their conditional grants. National Treasury was at the moment not very much concerned about the trend because it was still early in the year. However, it was important to note that it seemed like the trend was continuing.

Presentation by the Limpopo Department of Health
Dr HN Manzini (HOD) and Mr S Sekoati (MEC: Health)
represented the Department. The MEC thanked the Committee for the opportunity to come and confirm or deny the report by National Treasury. Dr Manzini made the presentation. (See document attached). She agreed with the figures presented by National Treasury.

She said that conditional grants had been the major source of the capital expenditure of the department with an average of 53% of the funds used being provided from the conditional grants. The equitable share had provided only 20% of the funds for buildings with 80% being sourced from the conditional grants. The Hospital Revitalization grant together with the Provincial Infrastructure Grant had provided the bulk of the capital used for facilities upgrades and provision of new clinics. Conditional grants had shown a steady increase over the past four years. In the 2004/05 year the Department did not receive R15.372 million of the R407.4 million allocated. The transfers were stopped when expenditure for the third quarter was not according to the expected level.

The Department had managed to increase expenditure on conditional grants from 6.27% (R40.67m) in the first quarter to 22.1 %(R 143.656m) at the half year mark. The inability of the Department to secure tenders for the purchase of medical equipment had resulted in limited expenditure to date on the Hospital Management and Quality Improvement (20.2%), National Tertiary Services (19.7%) and the Health Professional Training and Development (49.9 %) grants. Tenders for equipment were now being finalised and expenditure was expected to substantially increase in the second half of the year. Some R20 million would be transferred to non-governmental organisations (NGOs) during October 2005, after a proper screening of their ability to deliver on the Comprehensive HIV&AIDS programme. The Department anticipated that it would underspend by R 15 million on the Hospital Revitalisation grant. These funds would be surrendered back to the National Health Department with a request to increase the allocation for the 2006/07-year with the same amount because the projects would be completed in the next financial year.

The Department would only be able to spend the drought relief grant during the rain season because that was the time when waterborne diseases were prevalent. The Department still faced the challenge of attracting and retaining skilled personnel even though it had a high staff turnover. This problem was linked to the absence of suitable accommodation, especially in rural areas. The Department was trying to recruit people from Poland and Bulgaria.

Discussion
The Chairperson said that the provincial Treasury had indicated that, as of June 2005, the expenditure as a percentage of the budget was as follows:
Comprehensive HIV/AIDS: 10%
Hospital Management and Quality Improvement 10,36%
Hospital Revitalisation 15,09% and
Integrated Nutrition Programme: 10,78%.
With regard to capital expenditure, the expenditure at district level was as follows:
Capricorn- 5%
Greater Sekhukhune Cross boundary- 9%
Mopani- 1%
Vhembe 1% and
Waterberg 14%
He asked if these figures were correct.

Dr Manzini replied that the figures on the first list of grants were correct. Capital expenditure was managed at a provincial level.

Dr Blecher said that the Department indicated a budget of R508 million for capital expenditure and had spent R33 million (6,6%) by the end of the first quarter of 2005.

Dr Manzini agreed with the figures.

Mr D Botha (ANC) [Limpopo] said that the figures on the replacement of motor vehicles that had just been presented were different from those in a report forwarded to Members.

Dr Manzini replied that the correct figures were contained in the report given to members.

Mr M Robertson (ANC) [Eastern Cape] said that it appeared that there was a lot of rollovers. He wondered why there was a high staff turnover in the Department. The Department had anticipated that it would underspend by R15 on the Hospital Revitalisation grant. The R15 million underspending was a cause for concern given the condition of some hospitals in the country.

Dr Manzini replied that rollovers were necessitated by the fact that certain projects had not been completed. The projects would remain incomplete should the Department not apply for the rollovers.

Ms D Robinson (DA) [Western Cape] was also concerned by the high staff turnover. She asked how the province would improve the situation. The presenter had indicated that the Department was intending to recruit some Bulgarian and Polish professionals. She asked what steps were in place to overcome language problems that might occur between the doctors and patients. Were these the only countries from which the Department could recruit?

Dr Manzini replied that there was a problem of finding accommodation, particularly in rural areas. The Department had requested the provincial Treasury for some money so that it could enter into public-private partnerships to construct accommodation facilities. The advice that the Department received after feasibility studies indicated that the building of such facilities would not be cost effective. It was now interacting with the Treasury so that it could be allowed to use R79 million to construct the accommodation through the Department of Public Works. The plans were in place and the Department of Public Works had committed itself to fast tracking this so that the process could be completed before the end of the financial year.

With regard to the recruitment of Bulgarian and Polish professionals, she said that the Department was recruiting only from those countries that had relations with South Africa. It already had some of those people. There was a support system that ensured that the doctors understood the needs of the patients. Most of them were specialists and therefore most of the work was done by general practitioners before the patients were referred to them.

The Chairperson asked what were the main reason for the projected underspending and what was the Department doing to address the situation. Was the projected underspending due to poor or lack of proper planning? Departments made plans and budgets annually and were expected to able to implement their projects in line with the budget precisely because they had planned. He asked how the 6,6% underspending impacted on the communities. There was a real need for hospitals and clinics and yet the Department was underspending. He also asked how the high personnel turn over impacted on the whole budget. Would service delivery not be compromised by the high staff turn over? He wondered why the presentation did not say anything about the relationship between the Department and the Department of Public Works. It had been indicated that some consultants would be asked to assist.

Dr Manzini replied that Limpopo province was 92% rural and this led to staff moving from the province to other provinces. The provincial political leadership had taken the matter up to the national health council level to see how staff could be retained in rural settings. Planning had been a challenge over the years. Projects used to be taken over two financial years. Some improvements were being made in relation to planning. The 6,6% spending by June had risen to 22,1% as at the end of the second quarter. The percentage would have been higher had the Department been able to capture all its expenditure by the time the system was closed.

The MEC said that the Department of Public Works was the custodian of infrastructure and the status quo would remain until legislative changes. The Department had experienced some bad relations with the Department of Public Works (DPW) over the years and this had impacted on spending. At times one would find contractors who were not doing their job as expected. It had been agreed between the departments that they were part of one and the same government and should therefore work together. The Department of Health was dependent on DPW for technical expertise and advice but DPW at times lacked capacity. The Department of Health would ensure that it also had its own internal capacity so that it would not always be reliant on DPW and other agencies.

The Chairperson said that there were 15 main contracts on capital expenditure. He asked if the Department had signed Service Level agreements with the contractors. Dr Manzini agreed.

Mr Botha asked if there was any form of control over non-governmental organisations (NGOs) that received money from the Department. Some form of control was essential to ensure that the money transferred to them was spent for the intended purposes. It was surprising that there was a projected rollover of R15 million whilst there was no accommodation, water and electricity in some clinics.

Dr Manzini reiterated that the Limpopo province was largely rural. NGOs needed to be capacitated and a lot of work was required. The Department had to evaluate what the NGOs had done in the previous years before they could be given more money. Such evaluation made it possible for the Department to account for the money it had received and transferred to the organisations. The Department was satisfied that the organisations would be able to account for the moneys transferred to them. The money was not transferred on time because the Department wanted to be satisfied that it would be spent wisely. The Department would continue to monitor the organisations. She said that the Department could not use the R15 million for just about any purpose because there were conditions attached to it. It was part of the Hospital Revitalisation grant and could not be used for the electrification of clinics. There were natural forces that would make it difficult for the Department to spend the money.

The Chairperson said that the Committee should be provided with a list of all NGOs that were receiving money from the Department so that it could go and satisfy itself about their capacity.

Dr Manzini agreed that she would provide the list.

The Chairperson asked if the Department had signed agreements with the NGOs. The provincial Treasury had indicated that no agreements had been signed. The presentation indicated that business plans had been approved.

Dr Manzini agreed that the agreements had been signed.

Mr S Asiya (ANC) asked if one was not dealing with a case of fiscal dumping seeing that money had not yet been transferred to NGOs. He asked what did the Public Finance Management Act say about under and overspending. He was of the view that rollovers were given to provinces and not Departments. It was up to the province to decide which Department would get the rollovers. It was surprising that the Department was saying that it would request that the money be given to it in the next financial year as if the money was committed.

Dr Manzini replied that one was not dealing with fiscal dumping because the Department had followed national guidelines.

Mr G Muller (CFO: National Department of Health) said that it was preferable to underspend rather than transferring money without any hope that it would be spent properly.

Ms Robinson asked if people had all the necessary tools to enable them to discharge their duties. Job satisfaction was very important. Was there enough equipment and medicines and supervision and guidance offered to new doctors and nurses? People were bound to leave and go to provinces wherein they would receive better supervision and guidance. She asked if the money to be rolled over could not be used to make working conditions better.

Dr Manzini replied that the Department was trying to ensure that professionals were comfortable wherever they were. The situation would not change that much even if there was accommodation and good working conditions. The problem was that the facilities were in rural areas. People had to plan going to town as a journey.

The Chairperson asked if the Department received value for money from work done by NGOs. What was the impact of their work on the communities?

Dr Manzini replied that the Department would not be able to reach all parts of the provinces without the assistance of NGOs.

Mr M Goeieman (ANC) [Northern Cape] said it was easy to blame anything on lack of capacity. There should be a clear indication of what provinces meant by lack of capacity. One would assume that provinces had conducted some investigations and identified where and what kind of capacity was lacking. The presentation was silent on how the Department would address the problems it was experiencing.

The MEC replied that the Department relied on the Department of Public Works for technical expertise. In terms of the construction of infrastructure, one would need infrastructure. One might find the Department of Health having a project manager who was not necessarily an engineer. There was a lack of engineers in the country. It would be helpful if the Department could also have its own engineers.

The Chairperson wondered if the national Department of Health was aware of the problems experienced at provincial level.

Presentation by the Western Cape Department of Health
Mr Pierre Uys (MEC: Health) made the presentation. (See PowerPoint presentation). He said that there would be no underspending on the National Tertiary Services grant but a top up from the provincial equitable share. Spending on the HIV.AIDS would exceed the amount allocated and the Department had requested a further R10 million from the national Department. The Department had always exceeded the grant over the years because most of it went to anti-retroviral treatment. The scaling up of anti-retroviral treatment had been quicker that expected. It was envisaged that there would be just over 11 000 patients but the figure was to reach 15 000 by March. R1, 5 million had already been spent from the Hospital Management and Quality Improvement grant and it was expected that the whole grant would be spent. The Department had underspent by R30 million in the Hospital Revitalisation programme during the last financial year. There might be an underspending of R20 million this financial year on this programme.

The first quarter expenditure was as follows per grant at the end of the first quarter:
National Tertiary Services grant- R3000 million
Health Professions and Training and Development grant-R80, 8 million
Hospital Revitalisation Programme- R21, 1 million
HIV/AIDS- R18, 1 million
Hospital Management and Quality Improvement grant- R1, 5 million
Integrated Nutrition grant- R388 thousand.

The MEC said that the Department had planned better for this year and hoped it would be able to spend most of its grants.

Discussion
Mr Robertson complained that the presentation was difficult to follow because it was full of graphs.

The Chairperson said that the Committee should be given a list of NGOs that received money from the Department. He asked if the MEC agreed with the figures presented by provincial Treasury on the different grants. Mr Uys agreed.

The Chairperson said tenders in the Vredendaal Hospital still had to go out and there were some delays in approval of the business cases in the Paarl Hospital. Mr Uys said that the business cases had been approved

Ms Robinson asked what was ‘own expenditure’ and what kind of small construction did the Department do.

The MEC replied that these were small expenditures incurred in small operations like extending a waiting room in a clinic. This would also include upgrading ambulance stations and facilities.

The Chairperson asked what were the underlying reasons for the projected overspending on the HIV grant. Was it because of poor planning or higher uptake of anti-retroviral drugs?

Mr Uys replied that the Department had requested for R103 million but was only given R82 million. He was aware that the National Department was expected to fairly distribute resources across provinces. The amount of resources required increased as the treatment of patient increased.

A Member said that the Department’s budget seemed to favour certain sectors of the community. He thought that the budget was supposed to be informed by the population figures in the communities. It did not look like things would change in Khayelitsha. He asked why the budget for the Khayelitsha hospital was very low.

The Chairperson said that there were government priorities that had to do with closing the gaps of under development. The question was why the budget was not talking to the priorities.

Mr Uys replied that the Khayelitsha project was very important. The Department had engaged with the City of Cape Town and the Khayelitsha Development Forum to identify land. The Department was given green light to go ahead. The business case had been submitted but still had to be approved by the national Department. It was a priority and would hopefully kick off next year. The other projects had been on for some years. It was not a case on promoting some projects and neglecting others. There was a dire need for a hospital in Khayelitsha.

Mr Goeieman said that the MEC had indicated that the Integrated Nutrition Programme (INP) grant would be spent in full even though only 7% had been spent so far. He asked how the Department would ensure that 100% was spent by the end of the financial year. The same could be said about the Infrastructure grant (5%). He asked why spending was so slow in the Department.

Mr Uys agreed with the percentage relating to INP. Last year spending had started slowly but the Department still managed to spent the whole amount. Spending was better this year compared to last year hence the Department was convinced that it would spend the entire amount.

The Chairperson asked what was the impact of slow spending on the communities.

Mr Uys replied that there would be a negative impact to communities if services were not delivered in time. The Western Cape also had the problem of shortage of staff.

Ms Robinson said that delays in the hospitals had some impact. She asked if the Department was doing anything to prevent this in future.

The Chairperson asked what was the role of the provincial Department of Public Works in the construction and maintenance of hospitals and clinics.

Mr Uys replied that the Department of Health played no part in the tender process. It only had to sign the cheques. The Department experienced a delay in Valkenberg that lasted for more than a year. The Department could not have any new intakes in its nursing colleges for two years due to none completion of works.

The Chairperson wondered how the national Department assisted provinces. One would find the national Department allowing provinces to use their discretion to the detriment of national priorities and this created problems. The Khayelitsha hospital had been in the pipeline for some time. There would be problems if national priorities were not addressed timeously. The Limpopo Department had indicated that people were moving from the province to other provinces.

Mr Muller said that the national Department would look at the issue of Khayelitsha hospital.

Presentation by the North West Department of Health
Mr O Mongale (Deputy Director General) represented the province. (See document attached). He said that there was a need to improve the quality of business plans for conditional grants. There was also a need to strengthen project management and improve monitoring capacity. He confirmed the figures presented by Mr Blecher. The infrastructure delivery model should be revisited. This should entail looking at whether the province should continue to rely on the public service as the only infrastructure delivery arm. It had been realised that the use of other delivery agencies tended to yield better results that the use of the public service alone.

The expenditure on the different grants at the end of the first quarter was as follows:
-HIV/AIDS grant- 9,1% (43,26% as at 30 September)
-Hospital Management and Quality Improvement grant- 12% (34,6% as at 30 September)
-Health Professionals Training and Development grant- 22%. This grant was on track and the Department was convinced that there would be no problems.
-Integrated Nutrition Programme- 7,8%. Expenditure would pick up well and was projected to be around 45% at the moment. The prospects of doing well were good. This grant was easily affected by the transfer schedule.
-Hospital Revitalisation grant- 10%. The Department had not picked up as expected because expenditure was still at around 22% as of second quarter. There was a human resources capacity problem within the Department and within the implementing agencies. Some consultants were incapable of handling projects with the required competencies.
-National Tertiary Services grant- 7% (31% at end of September). This grant had shown some improvement.

He said that the malaria and cholera funds were a once off grant necessitated by the 2004 drought. All line expenditure items to benefit from this grant had been identified. The medico legal mortuaries funds were not yet available and the actual transfer would be effective from April 2006. The Department was busy with preparatory work for the implementation of the service in the next financial year.

Discussion
Mr E Sogoni (ANC) [Gauteng] said that the province had generally continued to underspend.

Mr Robertson said that one of the challenges listed under the Hospital Revitalisation programme was inadequate response by experienced contractors and empowered joint ventures. He asked how the Department would solve this problem. Another challenge was that the tendering and procurement processes both internally and externally took longer than expected. He asked how this could be rectified.

Mr Mongale replied that sometimes one would have list of people within the price range but only one or two of them would be experience contractors who were outside the range. There were two many infrastructure programmes going on. The big contractors were not only looking at the Department of Health as a possible client. There was competition for contractors amongst Departments. This was one of the reasons why big contractors did not respond to some tenders.

Mr Botha asked how the province had managed increase spending from 6% in the first quarter to 43% at the end of the second quarter. Was this actual or projected expenditure?

Mr Mongale replied that the Department had been careful not to use the late transfer of funds as the reason because it was not the only or main reason. The transfers for the second quarter were on time. The Department was engaging in a process of seeking the possible explanation for lack of spending. It was also looking at how to support programme managers responsible for conditional grants.

A member said that there was serious underspending. For instance there was a budget of R836 million for Mafikeng but to date there was zero spending. Some rollovers should anticipated. There was a negative impact on the communities and no development was taking place. The presenter had highlighted the issue of procurement as a challenge. He wondered how they would resolve this. The document presented did not show how they would solve the problem. The challenges listed under the Integrated Nutrition programme and remedial action did not speak to each other.

Mr Mongale replied that one of the things that the Department was busy dealing with was improving business plans. There would always be problems when implementing projects if there were no good plans. There were challenges within both the Departments of Public works and the Department of Health and both relied on consultants. It was a challenge that the departments were jointly grappling with. One was not passing the buck. Mafikeng had zero expenditure for the first quarter but the figure had increased to almost 30% for second quarter. Mafikeng had received less than a million Rand. The purchase of equipment for hospitals came from a number of grants.

Mr Asiya said that there was a problem around boundaries between the Northern West and Northern Cape provinces. The problem had persisted for more than eleven years. The provinces would talk about transferring funds from one province to another. The question was why the Heads of Departments were not sitting down together in order resolve the issues involved amicably as it had happened between the Free State and Northern Cape. The Free State and Northern Cape provinces had agreed that certain sections that were close to Northern Cape should be served by the Northern Cape Department and those close to Free State by the Free State Department.

The Chairperson said that one of the problems was that MECs were not talking to each other in the context of national priorities. There were no trade offs between provinces. Some people were very selfish and competitive. For instance, every province wanted an international airport. Was this feasible and practical in the context of limited resources?

Mr Mongale replied that the challenge had to do with the fact that one would have two hospitals within ten kilometres of each other. There was a need for proper planning so that one would not have the Northern Cape province pursuing the programme that the North West was busy with.

Mr Sogoni noted that the Integrated Nutrition Programme had transfer schedule problems. For an ordinary person this would mean that funds were transferred late. The question was why the funds transferred late, if this was the case. What generally informed the transfers? He also asked if the Department had policies around procurement.

Mr Mongale replied that the proposed remedial action would solve the transfer problem. With regard to the issue of procurement, he said that it was important for Department to submit their needs to the Department of Public Works. A team of people from different Departments had been set up to see to it that procurement would be done quickly.

The Chairperson asked if the Department was projecting any under or over spending on conditional grants and capital expenditure. What were the reasons for the projections and what was the Department and the provincial Treasury doing to address the issue. Was there value for money in terms of money that had already been spent? He also asked how the Department was planning to use the current budget to address the challenges that had been identified.

Mr Mongale replied that the issue of value for money needed to be looked at closely. There was a projected underspending in two grants. The business plans relating to the grants needed to be looked at closely. There might be a need for some readjustments to the plans. The approach would be to use money in areas that were showing faster spending instead of surrendering it. The underspending in relation to the Hospital revitalisation programme related to money that had been rolled over. The money was still with the provincial Treasury and the Department had not asked for it because it had realised that it might not be able to use the current budget and the roll over. There was no projected overspending on any grant. There was some discussion with the INP managers on whether or not their sense that there might be overspending was realistic or not.

Mr Robertson said that inadequate response by contractors and tendering and procurement processes go hand in hand. Delivery would be slow should one fail to get the two hand in hand. Tendering and procurement took too long in some provinces and this compromised service delivery.

The Chairperson said that tendering processes were very complicated in some municipalities. The Committee must do a study and look at the unintended consequences caused by tendering and procurement processes.

Briefing by Free State Department of Health
The provincial delegation consisted of Mr S Belot (MEC), Mr M Shuping (Acting Head of Department, Dr A Schoonwinkel (CFO), Dr R Chapman (Executive Manager: Health Support) Dr S Kabane (Acting Executive Manager: Clinical Health Services) and Ms R Sibeko (General Manager: Eastern Free State).

The MEC thanked the Committee for the opportunity to present before it. He proceeded to read through the presentation. (See PowerPoint presentation).

Mr Shuping took the Committee through the expenditure trends over the past two years. The actual expenditure per grant as at the end of the first and second (in brackets) quarters was as follows:
National Tertiary Services-25, 8% and (50%)
Comprehensive HIV and AIDS 11, 4% and (35%)
Hospital Revitalisation 6, 25 and (16%)
Integrated Nutrition Programme 7, 85 and (37%)
Hospital Management and Quality Improvement 15, 45 and (34%)
Health Professionals Training and Development 32, 7% and (64%)
Provincial Infrastructure grant 7, 7% and (25%)

There was a projected underspending of R20, 3 million and R1, 853 million in the Hospital revitalisation and Infrastructure grants respectively. There might be overspending on the Hospital Management and Quality Improvement grant but this would be supplemented by the equitable share.

Discussion
The Chairperson said that one thing that the presentation did not address was the deliverables. It would be useful to know if the country was winning the battle in relation to the Comprehensive HIV/ AIDS plan having used lot of money. This was important especially when looking at the problem of under and over spending.

Mr Botha said that the presentation was good. One might think that the examiner had leaked the question paper to the student.

Mr BJ Mkhaliphi (ANC) [Mpumalanga] said that Parliament was very strict and stingy when it came to giving compliments. The province had given a very good report and all that remained was for the Committee to go and see situation on the ground.

Mr Robertson congratulated the MEC for good work done.

A Member said that the report was very clear. The relationship between provincial Departments should be strengthened so that the issue of procurement could be speeded up. The issue of the relationship between Departments had been raised by other provincial Departments. He hoped that the Committee would meet with the provincial Departments of Public works when conducting its oversight visits. There was a need for actual onsite visits before giving a clean bill of health to the Department.

The meeting was adjourned.

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