Health Conditional Grants & Capital Expenditure 3rd Quarter 2005/6: input from National Treasury & Provinces

NCOP Finance

17 January 2006
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Meeting report

FINANCE SELECT COMMITTEE

FINANCE SELECT COMMITTEE
17 January 2006
HEALTH CONDITIONAL GRANTS AND CAPITAL EXPENDITURE 3RD QUARTER 2005/6: INPUT FROM NATIONAL TREASURY & PROVINCES

Chairperson:
Mr T Ralane (ANC, Free State)

Documents handed out:
National Treasury report on outcome of conditional grants and capital expenditure as at 30 November 2005
KwaZulu-Natal Department of Health expenditure as at 30 November 2005 and 31 December 2005
Mpumulanga Department of Health presentation on conditional grants
Eastern Cape Department of Health report on conditional grants
Free State Department of Health report on conditional grants
North West Department of Health presentation on conditional grants
Limpopo Department of Health and Social Development presentation on conditional grants
Northern Cape Department of Health third quarter provincial budget report
Western Cape Department of Health presentation on conditional grants
[please email
docs@pmg.org.za for documents]

SUMMARY
National Treasury briefed the Committee on provincial health expenditure as at 30 November 2005. The total provincial health spending was 62.3% of the R47.1 billion adjusted budget.

The KwaZulu-Natal Department of Health indicated that it had spent 35% of the Hospital Revitalisation Grant, and would request a roll-over of R99 million in 2005/2006. In the following financial year, the Department aimed to make use of the services of private developers rather than the Department of Public Works for Hospital Revitalisation.

The Mpumulanga Department of Health’s cumulative expenditure on conditional grants as at 31 December 2005 was 67%. The Department’s slow expenditure on Hospital Revitalisation (49%) was caused by the late appointment of service providers and the failure of service providers to provide guarantors.

The Eastern Cape Department of Health faced potential under-expenditure on Hospital Revitalisation for both the equitable share amount and the conditional grant.

Members were concerned with the potential under-expenditure on Hospital Revitalisation in KwaZulu-Natal, Mpumulanga and the Eastern Cape, while the use of private developers by the KwaZulu-Natal Department of Health and the Eastern Cape Department of Health for Hospital Revitalisation was also questioned.

The Free State Department of Health had not achieved 50% expenditure on the Hospital Revitalisation Grant (31%) and the Hospital Management and Quality Improvement Grant (48%) as at 31 December 2005, and it projected an under-expenditure on Hospital Revitalisation by R23.7 million.

The North West Department of Health registered the lowest rate of expenditure for the Hospital Management and Quality Improvement Grant (46.7%). The Department had spent only 57.2% of the Hospital Revitalisation Grant as at 31 December 2005, andR40 million of this grant would be withheld in agreement with the National Department of Health.

The Committee discussed the budgetary problems created by the Free State Department of Health’s amendment of its business plans in mid-financial year, and the North West Department of Health’s transfer of R40 million of its Hospital Revitalisation Grant back to the National Department of Health.

The Limpopo Department of Health’s total expenditure on conditional grants (43.5%) as at 31 December 2005 included expenditure of less than 50% on five of the grants. The Northern Cape Department of Health’s total expenditure for conditional grants was 72% of the adjusted budget, and it had spent less than 75% on only two grants: the Comprehensive HIV and AIDS Grant (48%), and the Hospital Revitalisation Grant (71%).

Members queried the Limpopo Department of Health’s projected under-expenditure of between 10% and 15% on conditional grants, as well as the Northern Cape Department of Health’s potential over-expenditure.

The Western Cape Department of Health’s expenditure on conditional grants was 72% against the target of 75% as at 31 December 2005. It projected under-expenditure of 20% on the Hospital Management and Quality Improvement Grant, and had adjusted the budget for Hospital Revitalisation from R172 million to R148 million.

Members questions focused on the Western Cape Department of Health’s late approval of its business plan for the Hospital Revitalisation Grant, and the Department’s surrender of R24 million of this grant to the National Department of Health.

MINUTES

National Treasury briefing
Mr C Adams (National Treasury, Intergovernmental Relations) briefed the Committee on provincial health expenditure as at 30 November 2005. The total provincial health spending was R29.4 billion or 62.3% against the R47.1 billion adjusted budget, comprising a 15.4% increase from November 2004. Limpopo Province (55.6%) and Gauteng (61.6%) showed the lowest rates of provincial health spending, while Northern Cape (66.1%) and Mpumulanga (65.5%) reflected the highest expenditure rates.

Provincial health expenditure according to programmes was the following:
- Provincial District Health Services (Programme Two): 63.9% of R18.2 billion adjusted budget
- Provincial Hospital Services (Programme Four): 65.6% of R11.7 billion adjusted budget
- Central Hospital Services (Programme Five): 65.1% of R7.8 billion adjusted budget

The provincial health departments submitted reports to the National Department of Health and their provincial treasuries on expenditure of conditional grants within 15 days after the end of each month. The National Department of Health and the provincial treasuries in turn reported to the National Treasury. The conditional grants that showed the lowest rates of spending included the Hospital Revitalisation Grant (44.3%), the Hospital Management and Quality Improvement Grant (46.6%), and the Integrated Nutrition Programme (53.6%). Five or more provinces had spent less than 50% for the Hospital Revitalisation Grant and the Hospital Management and Quality Improvement Grant.

KwaZulu-Natal Department of Health briefing
Ms N Nkonyeni (Member of the Executive Council for Health, KwaZulu-Natal) indicated that the KwaZulu-Natal Department of Health would spend all the funds allocated to the Comprehensive HIV and AIDS Grant, and the Hospital Management and Quality Improvement Grant, to which an additional R3 million had been allocated.

The Department had spent 35% of the R223.9 million grant for Hospital Revitalisation, and would request a roll-over of R99 million in 2005/2006. In the following financial year, the Department aimed to make use of the services of private developers rather than the Department of Public Works, and to this end it would submit a proposal to the KwaZulu-Natal Executive Council which, if approved, would allow it to fasttrack infrastructure development.

The Department would request a roll-over of R22 million on the Forensic Pathology Services Grant due to the late receipt of funding. Although the Department was overspending on the Provincial Infrastructure Grant (134% of R157.6 million), Ithala Developers had advised that of the R58 million provided to them, R33 million would not be used in the current financial year, and would be returned to the Department. Consequently, the Department would not overspend on this grant.

Mpumulanga Department of Health briefing
Mr H Verachia (Mpumulanga Department of Health, Head of Department) stated that the Mpumulanga Department of Health had spent 63% of the total budget, while 85% of the roll-over budget had been spent. The Department’s expenditure for each conditional grant as at 31 December 2005 was the following:
- Integrated Nutrition Programme: 72%
- Comprehensive HIV and AIDS Grant: 63% (an extra 9.2% was spent in January 2006)
- National Tertiary Services Grant: 89%
- Hospital Revitalisation Grant: 49%
- Hospital Management and Quality Improvement Grant: 74%
- Forensic Pathology Services Grant: 6% (the amount for this item was only allocated in the adjustment at the end of November 2005)

The Department’s cumulative expenditure on conditional grants as at 31 December 2005 was 67%. The reasons for the Department’s under-expenditure on Hospital Revitalisation were the late appointment of service providers and the failure of service providers to provide guarantors. As the Department had now entered into a service level agreement with the Department of Public Works, it projected an expenditure of 90% on Hospital Revitalisation by the end of the financial year.

Eastern Cape Department of Health briefing
Dr M Goqwana (Member of the Executive Council for Health, Eastern Cape) explained that the Department faced potential under-expenditure on Hospital Revitalisation for both the equitable share amount and the conditional grant. On the equitable share amount, the Department projected under-expenditure by R20 million due to legal disputes at Uitenhage and All Saints Hospitals.

The Department projected under-expenditure by R46 million on the conditional grant for Hospital Revitalisation as it had to allay a provincial overdraft before the grant could be spent. The slow expenditure of the grant was also caused by delays in importing equipment, for which part of the grant was used.

Discussion
Mr V Windvoel (Chief Whip of the National Council of Provinces) enquired why the KwaZulu-Natal Department of Health was contracting private developers for Hospital Revitalisation rather than making use of the expertise in the Department of Public Works. What were the financial implications of making use of private developers?

Ms Nkonyeni responded that the backlog of 300 clinics requiring revitalisation demonstrated the lack of capacity in the KwaZulu-Natal Department of Public Works, in which there was a high level of vacancy. As an alternative method of provincial infrastructure development, the Department had started using Ithala Developers, a parastatal organisation, which had already delivered on its mandate.

The Chairperson observed that the Department was acting in the context of Public-Private Partnership (PPP) by harnessing resources from both the public and private sectors for infrastructure development.

Mr Windvoel noted that the Mpumulanga Department of Health showed an improvement in total expenditure of its budget from 29% in 2003/2004 to 74% in 2004/2005, and asked how the Department had mitigated against the under-spending of the previous financial year. Mr E Sogoni (ANC, Gauteng) queried why the Mpumulanga Department of Health’s expenditure on provincial infrastructure was low.

Mr C Van Rooyen (ANC, Free State) commented that the reasons given by the Mpumulanga Department of Health for under-expenditure on Hospital Revitalisation (such as the late appointment of service providers) ‘recurred year after year’. Under-expenditure would cause ‘fiscal dumping’, and this was a result of poor planning.

The Chairperson clarified that the Medium Term Expenditure Framework (MTEF) provided for long-term planning through the indicators in the Division of Revenue Act. Provincial treasuries interrupted delivery when they submitted business plans and later altered these. What was the Mpumulanga Department of Health doing in conjunction with the Provincial Treasury to address under-expenditure on Hospital Revitalisation?

Mr Verachia replied that the Premier for Mpumulanga had taken responsibility for the Departments of Education and Health as these were the highest spending departments in the province. Therefore, these departments convened frequently with the Provincial Treasury to monitor spending on capital projects. The Independent Development Trust (IDT) was used by the Department of Health for some Hospital Revitalisation projects, yet it was supervised by the Department of Public Works. The Department of Public Works had improved its staff capacity, while the Department of Health had appointed a project manager for Hospital Revitalisation.

Mr P Khoza (Mpumulanga Department of Public Works) added that the Department of Public Works had addressed the problem of the late appointment of service providers, and the register of the Construction Industry Development Board (CIDB) addressed the issue of service providers that were unable to provide guarantors. The Department of Public Works had entered into a service level agreement with the Department of Health whereby it submitted a monthly progress report on each project.

Mr Sogoni queried why the Eastern Cape Department of Health was also using private developers for Hospital Revitalisation rather than the Department of Public Works, and asked the Department to explain the distinction between equitable share potential under-expenditure and conditional grant under-expenditure for Hospital Revitalisation.

Dr Goqwana stated that the Department’s potential under-expenditure for Hospital Revitalisation was R20 million on the equitable share and R46 million on the conditional grant. One of the reasons why the Department made use of the private sector for Hospital Revitalisation projects was that some professional members of staff were not paid according to their skills by the Department of Public Works. When these members of staff moved to private companies, the Department of Health made use of their skills in the private sector. The Chairperson observed that although private companies would leverage funding from the Department of Health, they would provide the necessary professional skills.

Free State Department of Health briefing
Mr S Belot (Member of the Executive Council for Health, Free State) reported that the Free State Department of Health had not achieved 50% expenditure on the Hospital Revitalisation Grant (31%) and the Hospital Management and Quality Improvement Grant (48%) as at 31 December 2005. The Department’s slow expenditure of the Hospital Revitalisation Grant was caused by the delays in contracts being awarded. Although the Department of Public Works had awarded all outstanding contracts during December 2005, the Department of Health projected an under-expenditure on Hospital Revitalisation by R23.7 million.

The Department had only spent 51% of the Comprehensive HIV and AIDS Grant as at 31 December 2005 due to slow progress in establishing its last five Antiretroviral (ARV) sites, and due to the adjustment of the business plan in November 2005 to include an additional R10 million.

North West Department of Health briefing
Mr O Mongale (North West Department of Health, Head of Department) outlined the North West Department of Health’s expenditure of conditional grant allocations, which amounted to 10.82% of the total Department budget for 2005/2006. The Department registered the lowest rate of expenditure for the Hospital Management and Quality Improvement Grant (46.7%). The Department had enrolled 21 hospitals in quality improvement programmes, yet it was lagging behind in the revenue collection process.

The Department had spent 57.2% of the Hospital Revitalisation Grant as at 31 December 2005. R40 million of this grant would be withheld in agreement with the National Department of Health as few experienced contractors were competing for the Department’s critical contracts. The Department’s expenditure of the Comprehensive HIV and AIDS Grant (67.9%) was below the target of 75%, as six of the remaining ARV sites were not established as quickly as expected.

The Department’s expenditure of the National Tertiary Services Grant was 51% as at 31 December 2005, as two hospitals that had not previously received the grant, Mafikeng and Rustenberg Hospitals, were experiencing difficulties. However, since 29% of this grant was allocated for health-care technology, expenditure would improve in the fourth quarter of the financial year.

Discussion
Mr Sogoni noted that conditional grants were only approved subsequent to discussions between provincial and national departments in which the MTEF was used as the basis for planning. Why had the Free State Department of Health only approved tenders in December 2005? Mr Belot answered that as many of the professional teams awarding contracts at hospitals were appointed pre-1994, these appointments were cancelled and new teams appointed before contracts could be awarded. The Department also had to re-align contracts to CIDB requirements which became compulsory from August 2005.

Mr Van Rooyen enquired whether the Free State Department of Health’s monitoring mechanisms for expenditure of conditional grants were sufficiently rigorous, given the decrease in expenditure on Hospital Revitalisation in 2005/2006. He suggested that near the end of the financial year, the monthly progress reports on the expenditure of conditional grants should become fortnightly, and the Provincial Steering Committee should also meet more often than once a month.

The Chairperson asked what progress the Free State Department of Health had made in formulating a business plan on conditional grants for the next financial year. Mr Belot replied that the business plan was in its final draft and he pledged that it would be approved before 1 April 2006. The Chairperson further enquired how the Department together with its provincial treasury would address the projected under-expenditure on the Hospital Revitalisation Grant. Mr Belot answered that the Department projected under-expenditure of R23 million on Hospital Revitalisation. This amount would be rolled-over to the following financial year for the completion of projects.

The Chairperson commented that the adjustment of business plans mid-financial year by provincial departments consistently caused budgetary problems. He suggested that the Free State Department of Health should consult with the National Department of Health on problems with the expenditure of conditional grants before altering the business plan.

The Chairperson observed that the expenditure of the North West Department of Health on the Integrated Nutrition Programme was under 50% in November 2005 and over 70% in December 2005; similarly the Department’s expenditure on Hospital Revitalisation was under 50% in November 2005 and 57% in December 2005. How were these figures improved to this degree within one month? Mr Mongale responded that the Department’s expenditure on conditional grants sometimes improved in the second, third, and fourth quarters of the financial year as procurement processes were ‘unlocked’. Improved spending in the latter part of the financial year could also be caused by the amendment of business plans in the course of the year.

The Chairperson asked why the North West Department of Health would transfer R40 million of its Hospital Revitalisation Grant back to the National Department of Health. Mr Mongale answered that the Department had decided in consultation with the National Department of Health that ‘even according to the most optimistic projections’ this money would not be spent.

The Chairperson further enquired whether the Department could transfer the R40 million to another provincial department according to the Division of Revenue Act. Mr Mongale explained that the Provincial Treasury and the National Department of Health had jointly decided that the R40 million would be returned to the North West Department of Health in the following financial year for the completion of its Hospital Revitalisation projects. Mr F Britt-Muller (National Department of Health) clarified that the reallocation of money across provincial departments was easier with equitable share than with conditional grants, as conditional grants were conditional on their expenditure, and money not spent would be returned to the National Treasury.

Mr Van Rooyen claimed that the adjustment of business plans in mid-financial year was due to poor planning and created opportunities for financial mismanagement.

Limpopo Department of Health briefing
Dr M Nkadimeng (Limpopo Department of Health, Acting Head of Department) reported that the Limpopo Department of Health’s total expenditure on conditional grants (43.5%) as at 31 December 2005 included expenditure of less than 50% on five of the grants: Hospital Management and Quality Improvement Grant (37.3%); Comprehensive HIV and AIDS Grant (45%); National Tertiary Services Grant (28.8%); Cholera and Malaria Grant (34.4%); Hospital Revitalisation Grant (35.9%).

The Department projected under-expenditure on the Hospital Revitalisation Grant by R15 million due to the late appointment of contractors and the difficulties faced by emerging contractors in sourcing building materials. The Department would surrender R10 million of the Hospital Revitalisation Grant to the National Department of Health with the request that the allocation for 2006/2007 would be increased by this amount.

The Department adjusted the business plan for the Comprehensive HIV and AIDS Grant in an attempt to speed up service delivery, and to this end it transferred R20 million to non-governmental organisations (NGOs) during October 2005.

Northern Cape Department of Health briefing
Mr D Madyo (Northern Cape Department of Health, Head of Department) sketched the performance of the Northern Cape Department of Health on conditional grants expenditure. The Department’s total expenditure for conditional grants was 72% of the adjusted budget, and the Department had spent less than 75% on only two grants: the Comprehensive HIV and AIDS Grant (48%), and the Hospital Revitalisation Grant (71%).

Expenditure for the Comprehensive HIV and AIDS Grant that had been incurred, but was yet to be recorded, included R12.5 million for laboratory services and pharmaceuticals, and R7.8 million for patient transport and nutrition. The Department’s under-spending on Hospital Revitalisation was caused by the slow performance of contractors on projects at Mental Hospital and Colesburg Hospital.

Discussion
Mr Z Kolweni (ANC, North West) said that it appeared as if the Limpopo Department of Health would surrender funds from its Hospital Revitalisation Grant to National Treasury, and Mr Van Rooyen prompted the Department to indicate its monitoring mechanisms for the expenditure of conditional grants. Mr Sogoni asserted that the Department was shifting responsibility for its potential under-expenditure on Hospital Revitalisation onto the Department of Public Works, and asked how it would spend the conditional grant allocations by the end of the financial year, when its expenditure for conditional grants was under 50% after the third quarter.

Dr Nkadimeng responded that the Limpopo Department of Health had a monitoring committee to oversee the expenditure of conditional grants. The Department would surrender R10 million of its Hospital Revitalisation Grant to the Provincial Treasury as contractors came on site late. However, the project was continuing, and the funds surrendered would be available in the next financial year. The Department of Public Works was not responsible for the slow performance of contractors, as the contractors themselves were experiencing difficulties with obtaining materials from larger contractors. The Department projected a total under-expenditure of between 10% and 15% on conditional grants.

Mr M Sulliman (ANC, Northern Cape) asked whether there was a disjunction between the Northern Cape Department of Health and the Department of Public Works, and whether there was an inter-departmental steering committee to correct this. Mr Madyo recalled that the Department of Public Works had delayed the tendering process for the revitalisation project at Mental Hospital, and that it created problems through the manner in which it administered tenders.

Mr D Botha (ANC, Limpopo) and Ms J Masilo (ANC, North West) expressed concern that the Northern Cape Department of Health would over-spend on conditional grants by the end of the financial year. Mr Madyo said that the Department would not over-spend on conditional grants, and that it preferred to over-spend on cash-flow projections rather than to under-spend.

Western Cape Department of Health briefing
Mr P Uys (Member of the Executive Council for Health, Western Cape) indicated that the Western Cape Department of Health’s expenditure on conditional grants was 72% against the target of 75% as at 31 December 2005. The grants on which the Department was spending less than 75% were: Integrated Nutrition Programme (51%); Hospital Management and Quality Improvement (45%); Provincial Infrastructure (61%); Hospital Revitalisation Grant (43%).

The Department projected full expenditure of the Integrated Nutrition Programme Grant and the Provincial Infrastructure Grant. However, it projected under-expenditure of 20% on the Hospital Management and Quality Improvement Grant. The Department had adjusted the budget for Hospital Revitalisation from R172 million to R148 million, and projected a further under-expenditure of R38 million on the adjusted budget.

Discussion
Ms D Robinson (DA, Western Cape) stated that the Western Cape Department of Health’s projected under-expenditure on Hospital Management and Quality Improvement and Hospital Revitalisation demonstrated the need for business plans to be approved on time. Many people who had migrated into settlements in the Western Cape required primary health-care.

The Chairperson added that the Committee should discuss the question of demographics, as many people migrated from the Eastern Cape to work in the Western Cape for part of the year, and the Department should consider their primary health-care needs.

Mr Sogoni noted that R24 million of the Hospital Revitalisation Grant was being surrendered to the National Department of Health despite the health-care needs expressed by Members. He queried why the Department took nine months to approve its business plan for the Hospital Revitalisation Grant. Mr Uys responded that the amount surrendered to the National Department of Health would be rolled over into the next financial year as Hospital Revitalisation projects were funded for their duration.

Mr Uys conceded that the criticism of the Department’s late approval of business plans was valid, yet the adjustment of business plans became necessary with the upscaling of the Hospital Revitalisation Programme. The migration of people into the Western Cape created the problem of providing primary health-care facilities for settlements of people. Mobile clinics were an option, but were not ideal.

Ms Masilo enquired which of the five hospitals currently being revitalised by the Department (Vredenburg, Worcester, George, Paarl, and Khayelitsha) would be ready to hand over to the community first. Mr Uys replied that the construction of Khayelitsha Hospital was the Department’s priority in the Hospital Revitalisation Programme. All of the other hospitals were currently functioning, and George Hospital was the most fully functioning.

The meeting was adjourned.

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