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JOINT BUDGET COMMITTEE
08 August 2006
PROVINCIAL BUDGET MONITORING SYSTEM (SECTION 32 REPORTS): BRIEFING
Co-chairperson: Ms L Mabe (ANC)
Documents handed out
Provincial Budgets Report 2006/07: First Quarter ended 30 June 2006
Provincial Quarterly Performance Report Overview: Third Quarter: October – December 2005 Presentation on Section 32 Reports: In-year management, monitoring and reporting system
The National Treasury briefed the Committee on the Public Finance Management Act's Section 32 Reports that monitors provincial budgets, expenditure and borrowing. The Committee reviewed the Provincial Budget Report for First Quarter 2006/07 Financial Year, ending 30 June 2006. Members were concerned about the trend of under spending amongst departments. The Committee felt that stricter and more efficient monitoring mechanisms needed to be applied to ensure that money was spent efficiently and more importantly that service delivery was not delayed. Agreement was reached that the relevant officials should be invited to clarify some areas that were not resolved in the meeting.
National Treasury presentations
Mr Msulwa Daca (Director: National and Provincial Generally Recognised Accounting Practice (GRAP) Implementation) introduced the National Treasury’s delegation as Ms Lizette Labuschagne (Director: National Revenue Fund); Mr Rigard Lemmer (Director: Intergovernmental relations) and Mr Thembekile Plaatjie (Parliamentary Liaison Officer).
Ms Labuschagne briefed the Committee on the Public Finance Management Act's (PFMA) Section 32 reports. The presentation covered the background and legal framework, highlighting Section 55 (2) of the Constitution, the International Monetary Fund (IMF) requirements indicating economic classification for revenue, economic revenue for expenditure with the current account, capital and transfers within 30 days after month end. She dealt with the format of the report whereby the Minister of Finance tables his budget with income, expenditure, and deficit before loans and financing of the deficit. Taxes on income and profits as well as taxes on property and domestic taxes on goods and service had to be reported. The format for expenditure is classified according to clusters per department with a clear analysis of the actual expenditure monthly and year to date. Extraordinary receipts included profit conversion of foreign loans, dividends and the sale of MTN shares while extraordinary payments included Gold and Foreign Exchange Contingency Reserve Account (GFECRA) losses and profit conversion of foreign loans. Financing of the deficit included short and long-term loans incorporating domestic and foreign loans. The cash flow statement covered revenue received, expenditure and the deficit. (Please see attached copy for a summary of national revenue).
Mr Lemmer presented the in-year management, monitoring and reporting system (Section 32 reports). The reports were sparked by the 1997/98 financial crisis in provinces where R5, 8 billion in aggregate was overspent. Cabinet approved a monitoring system to change the budget process. Legal requirements included publishing reports on state budgets and reports on monthly expenditure and revenue from provincial treasuries and National Treasury. The purpose of in-year management was to focus on performance against budget and to alert managers where remedial action was required. Monthly reporting contained three processes to improve accountability and highlight variances, projections and reasons for deviations. At the end, millions of individual transactions that occurred as a result of government activities were published monthly.
To ensure proper information flows, provincial departments submitted reports within fifteen days after the end of the month to the National Department, which were then submitted to the National Treasury within twenty days. As far as reports were concerned: “It should be noted that one cannot necessarily draw meaningful conclusions by only looking at the first quarter financial results given the fact that it is relatively early in the financial year. The adjustments budgets are reflected in the 3rd quarter and 4th quarter publications”, said Mr Lemmer.
Mr L Dithebe (ANC) asked if the salaries of foreign nationals formed part of payments to the Southern African Customs Union (SACU) as they were reflected in the presentation.
Ms Labuschagne responded that that was not necessarily the case even though they could be affected as a result of trade and movement of nationals within the Union.
Mr Dithebe commented that the President spoke emphatically on unauthorised spending as well as under spending. It was important that the Committee looked at those issues as it would ensure that service delivery was not affected.
The Chairperson asked if there was a detecting mechanism that could monitor payments that had been transferred to a particular department, but due to technical challenges could not be paid to the relevant people on time. She said that one of the reasons for such delays was the different financial year starting periods amongst departments and service providers.
Mr Daca responded that the Auditor-General was getting ready to audit Departments to avoid such occurrences as well as to ensure that money was not just spent, but was used properly and efficiently. Such performance audits were already underway.
The Chairperson shared Mr Dithebe’s sentiments that the Committee needed to intervene even before the Auditor-General performed audits. She was concerned that at the end of the day people at grass roots level suffered the most due to lack of service delivery.
Mr M Gumede (ANC) asked about the frequency of the review report.
Mr Daca responded that an intergovernmental report was published annually.
Mr G Schneemann (ANC) asked if there were sufficient monitoring mechanisms for transfer payments.
Mr Daca responded that it was difficult to track expenditure behaviour in that some departments had monitoring capacity in place while others had none. National Treasury hoped to resolve the issue shortly.
Ms D Robinson (DA) was concerned about speculation that libraries were going to be closed down. She asked if Treasury could look into the matter. She added that libraries were very important and added great value to communities.
Mr Daca said that he was not in a position to respond to the question, but would provide answers at a later stage.
The Chairperson asked for clarity on who was responsible for payments for large projects between departments and the Department of Public Works (DPW). She gave an example of the Department of Health’s Hospital Revitalisation Programme and the relationship with DPW. She was worried that the line of responsibility for payments was not clear enough and that caused delays in service delivery.
The Treasury responded that departments were responsible for accounting processes and DPW would render the service as per the agreement. Payments were transferred as and when necessary.
Mr Dithebe proposed that an interim asset register be made available while more work was being done to finalise asset registration.
The Treasury said that there were still problems with the register, but there had been progress towards ensuring that all assets were recorded.
Mr Dithebe expressed great concern that the economic cluster as indicated in the presentation was falling back on the spending trend despite latest developments such as the Sector Education and Training Authorities (SETAs) and the Accelerated Shared Growth Initiative of South Africa (ASGISA). He asked if the Treasury was satisfied with the current level of economic growth, considering the six percent target.
Mr Lemmer concurred that the SETAs and ASGISA as well as the Department of Trade and Industry (DTI) were critical components for advancing growth. It was indeed alarming to see that the DTI was falling back on its spending targets. However the question was a fair one and applied to all departments. In as far as the set targets for economic growth were concerned, the National Treasury was hopeful that they would be achieved.
Mr B Dambuza (ANC) added that there was a great need to monitor departmental transfers and payments. It was evident that departments followed the same trend, which indicated under- spending.
The Chairperson agreed and suggested that the relevant officials be invited to answer and clarify certain areas.
Mr B Mnguni (ANC) asked if National Treasury had any leverage to “interrogate” the spending behaviour of departments.
Mr Daca informed the Committee that the National Treasury did not intend to hold back the process of service delivery by not processing funds. Its role was more supportive, but under extreme conditions, interrogative measures could be applied and funds could be withheld to address the problem at hand.
Mr G Schneemann (ANC) commented that the tool suggested by the National Treasury to look into the fiscal transfers of provinces was “good”.
The meeting was adjourned.
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