Provincial Budget Monitoring System (Section 32 Reports): briefing
Budget Committee on Appropriation
08 August 2006
Meeting Summary
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Meeting report
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
SUMMARY
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.
MINUTES
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.
Discussion
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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