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Meeting reportSELECT COMMITTEE ON FINANCE AND JOINT BUDGET COMMITTEE
12 October 2007
PUBLIC FINANCE MANAGEMENT ACT SECTION 32 REPORTS: NATIONAL TREASURY BRIEFING
Co-Chairpersons: Mr T S Ralane (ANC) Ms L Mabe (ANC)
In-Year Financial Monitoring: Briefing by National Treasury for Joint Budget Committee
In-Year Financial Monitoring: Annexure
Statement of National Revenue, Expenditure & Borrowing as at 31 August 2007 by DG: National Treasury
Chief Directorate: Provincial Budget Analysis Circular 1 of 2007/08
2007/08 Financial Year Cashflow Estimates
Provincial Budgets and Expenditure as at 31 August 2007
Audio recording of meeting
National Treasury briefed the Committee on the type of reporting to Treasury, focusing on how these reports would assist the Committee in performing oversight functions, with a focus on revenue and expenditure. In-Year Financial monitoring would monitor year-to-date expenditure trends and analyse in-year monitoring reports. The background, management and reporting process were explained. Treasury advised that the purpose was to improve accountability and transparency, and to focus on performance against budget. National Treasury would set the format of the report in terms of the Public Finance Management Act and Division of Revenue Act. Year to Date consolidated expenditure was explained. In terms of the provincial budget, provincial spending for the first five months up to 31 August 2007 was tabled and explained. Treasury then explained that the Section 32 Monthly National Report was a summary table of national revenue, expenditure and borrowing. The report would give members detailed information and would prove helpful when analysing what money was spent on. The National Programme and Economic Classification Report provided detailed quarterly in-year spending information in a readable format that would help Parliament to scrutinise departments’ financial performance. Finally Treasury informed members of the progress of the management information system Vulindlela
Although there was little time for questions, Members focused on the drawing and interpretation of provincial budgets and expenditure reports. Questions were asked on rollovers, the difference between equitable share and conditional grants, benchmarks, projections of spending, Schedule 4 grants and the oversight functions. It was agreed that further follow up meetings would be held, where over and under spending could be discussed.
In-Year Financial Monitoring: National Treasury (NT) Briefing
Mr Robert Clifton, Technical Advisor: National Treasury, informed the Committee that he would begin with the outline of the report focusing on year-to-date (YTD) expenditure trends, followed by the analysis of the in-year monitoring reports., and finally give a brief overview focusing on the expenditure of government departments for the period of five months to 31 August 2007. He noted that NT was available to support portfolio committees and that the NT wanted to provide members with as many examples as possible.
YTD Consolidated Expenditure
Mr Clifton stated that the Estimates of National Expenditure (ENE) outlined the budget total for all government departments. The totals were taken for five months up until 31 August 2007 and the budget was broken down to either capital or current expenditure.
He told members that direct charges would be broken down and explained in the Section 32 (Public Finance Management Act) report. Clifton explained that direct charges against the NT would look at elements such as debt service cost, equitable share transfers and skills development.
Mr Clifton focused on the YTD Vote Expenditure report in the Annexure (see attached document), explaining to members what percentage of the budget was expended, the projected YTD spending, the projected percentage of budget expended and the variance between actual and projected expenditure. He then used the data from the variance between actual and projected expenditure to show members which departments had overspent or under spent on their budget. Departments that over spent were South African Management Development Institute (SAMDI), Parliament, Safety and Security, Environment and Trade and Industry.
Mr Clifton stated that using Rand amounts gave a more accurate projection.
Provincial Budgets and Expenditure as at 31 August 2007
Mr Rigard Lemmer, Director: Provincial Budget Analysis: NT, tabled a presentation covering the provincial spending for the first five months of 2007/08. This was based on In-Year Monitoring (IYM) models submitted to the NT. Mr Lemmer noted that provinces under spent last year, but this year provincial spending would be on track.
Mr Lemmer stated that most of the provinces’ budgets were going towards education. He also informed committee members that when overspending occurred, most of it was due to increased personnel expenditure.
Mr Lemmer indicated that health was the second largest budget and that it was projected that there would be overspending in this area, and in social welfare services and personnel. It was also projected that payments for capital assets would overspend but it was noted that in this area there had been under spend in the previous year.
He reported that spending was low for arts and culture because there were still some challenges in implementing grants.
Mr Lemmer tackled the concept of conditional grants, noting that spending was quite low, but that some expenditure was not mentioned because it was difficult to track certain expenditure such as Schedule 4 grants. He tabled graphs showing the low spending. He stated that at this stage NT did not have all the details but that Provincial Treasury was providing updates for spending.
In Year Monitoring(IYM) Background
Mr Lemmer stated that this was sparked by the 1997/98 financial crisis in the provinces. Provinces had overspent their budget by R5.8 billion in aggregate, which resulted in introduction of a monitoring system that had been approved by Cabinet. Expenditure and revenue management, as well as cash flow management, movements in bank balances and suspense accounts would be monitored.
Mr Lemmer commented further on Section 32 of the Public Finance Management Act (PFMA) indicating that this Section required reports on the state of budgets to be published on a regular basis. The Act would also require monthly expenditure and revenue reporting to the provincial Treasuries and National Treasury.
In-Year Management, Monitoring and Reporting
Mr Lemmer stated that this was a monthly process followed by provincial departments, who, on the 15th of the month, would submit a report to the provincial treasury and the national departments. The provincial treasury would update the IYM model with all the information and would submit it to the National Treasury on the 22nd of the month. This was implemented as part of the Public Finance Management Act and the Division of Revenue Act. This was implemented as part of the Public Finance Management Act and the Division of Revenue Act. He said that it was a way to verify the numbers and to know the real situation of the provinces.
Reports must be submitted to the relevant treasuries and accounting officers must sign off on monthly reports before submission. This was introduced to improve accountability as they had encountered some trouble previously.
Mr Lemmer stated that the content of the report would consist of details about actual revenue and expenditure, projections for the remainder of the financial year, information on conditional grants and any material variances. He also said that the format of the report would be revised annually as additional information was being received from provinces every year.
Section 32 Monthly National Report
Mr Clifton noted that the Section 32 (of the PFMA) report was a monthly publication by the National Treasury for the public information purposes as well as for the government. The report would be published early in the month showing the previous month’s figures. This would ensure better management of cash.
Mr Clifton stated that the revenue report was very detailed and would provide year on year budget information. The expenditure report was a summary of expenditure per vote and expenditure to date. It would itemise direct charges separately. This report would provide a high level analysis so that departments could interrogate their budget spending. The summary table of borrowing was important for certain Committees, as it showed how government expenditure was financed. It broke down the total cash that was available.
Mr Clifton stated that the purpose of a Section 32 report was to increase accountability and transparency, by giving a detailed analysis of national government accounts. It was also a public account which would allow for comparisons enabling the public to see what government was spending on, and its overall performance.
Mr B Mkongi (ANC) wanted to know what the relation was between direct charges and budget transfers. He also wanted to know the relevance of a 15% benchmark.
Mr Clifton stated that direct charges referred to expenses such as debt cost, members’ remuneration and judges’ salaries. Direct charges were generally related to costs incurred by elected members. He also noted that the 15% benchmark saying that it seemed to be the right cut-off. Mr Clifton said that there were two departments that had just missed the overview.
Mr Mkongi asked if it was up to the particular portfolio committee to choose its benchmark.
Mr Clifton replied that there was a discretionary line that could become a priority programme. He said that there could be a benchmark of 8% but departments would have to answer for variances. Any deviation from 8% would need to be explained.
Mr Mkongi questioned the NT about anticipated rollovers, asking what the provisions of the PFMA were in relation to rollovers, and whether they were allowed.
Ms O Kasienyane(ANC) also questioned why anticipated rollovers would occur. She wanted more clarity as to how provinces could apply for rollovers.
Ms C Nkuna (ANC) wanted to know what reasons the NT would accept when considering applications for rollovers.
Mr Lemmer stated that departments could have a budget for something, but that the money might not be spent for various reasons. He informed members that departments could apply to the NT to roll over the amount if that specific department could prove to the NT that the money would be spent in the near future. NT would then make a recommendation based on those reasons.
Mr Mkongi also asked for a simple explanation of the difference between the equitable share grants and conditional grants.
Mr Lemmer informed members that equitable shares were unconditional and made up a substantial portion of the provincial budget. Provinces could use their own discretion to allocate shares. He stated that the National Department received conditional grants and transferred them to the provincial departments. The National Department would then oversee the use of grants in the Provincial Departments. Mr Lemmer stated that there were systems in place to monitor the spending between the two departments. He commented that it could be possible for provinces to change the amounts so the NT made the flow of information part of the Division of Revenue Act.
Mr B Komphela (ANC) complained that the presentation had been interrupted and thus did not have the impact that it should have. He said that it was difficult to follow what had been said.
Mr Komphela asked for further explanations on the In-Year Financial Monitoring System. He also wanted to understand the logic in having such a long process of submitting reports.
Ms Kasienyane said that the Committee needed more time to understand the reports and that it was important that the NT repeat the presentations after more information became available from other departments.
Ms Kasienyane commented on conditional grants, saying that it was a shame to have such low allocations to important issues such as HIV/AIDS and education.
Ms Nkuna also commented that social grants were implemented slowly because of the lack of human resources.
Mr L Zita (ANC) wanted to know if the NT had an idea of what to do with oversight, and if there was some sort of feedback mechanism or somebody to report to. He asked if there was a system in place that would allow closer attention to be paid to matters.
Mr M Swart (DA) stated that Members would have to look at the departments that were under spending. He wanted to know if the NT had received reports from Committees showing them why under spending took place.
Mr Lemmer answered questions concerning projections. He focused on projection expenditure, saying that in some cases, departments were only doing the exercise for compliance purposes and there was no real focus on projections. Members must look at the real situation within the departments. He said that some departments could not work on projections for the first few months, because adjustments were needed. If departments were still over spending after adjustments were, then this was a matter that warranted the concern of Members, who should decide what to do.
Mr Lemmer also explained that the NT wanted provinces to focus on projections. He stated that projected budgets could swing and that this posed a challenge for NT as it would have to see if the projections were a true reflection of what and where departments had been spending. It was important for projections to be of high quality so that good decisions could be made.
Mr Mkongi then asked if there was a tool that departments could use to counter inflated amounts. He commented that some departments over-budgeted and wasted money and it was therefore important to track whether budgets were inflated.
Mr Lemmer replied that there was no such tool in place. He noted that there were some projections that were inflated and said that it was that specific sector’s responsibility to figure out what it needed.
Mr Lemmer also informed members that provinces were reporting to NT even though it was not required that they publish information on Schedule 4 grants.
Chairperson Ralane stated that the issue of Schedule 4 grants should be examined more closely as there was an issue of accountability.
Chairperson Mabe agreed, saying that the committee would have to see to the issue and then make recommendations.
Mr Zita once wanted to know what the Committee could do to ensure proper oversight. He also wanted to know if there was a system in place for the government to give feedback on overspending or underspending on the budget.
Chairperson Ralane explained that the committees would consider the monthly reports and then report to Parliament quarterly. He said it was an issue of communication.
Mr Komphela commented that the reports were needed in portfolio committees as well. He said that it could be helpful to get quarterly reports from the departments.
Mr Mkongi said that it was important for NT to assist the committees by telling them exactly what they should be looking at in the reports.
Mr Komphela said that it was important to see how the reports could be used with regard to the information offered.
Mr Clifton responded to issues of oversight. He said that it was very difficult to draw conclusions in the early months but interrogations could take place within the last three months. He added that the Joint Budget Committee could also look in to the matters. Mr Clifton added, on the issue of feedback, that if there was a trend of overspending or underspending, then meetings were held to find out the causes. He added that at provincial level meetings were held with all departments and sectors.
National Programme and Economic Classification (NPEC) Quarterly Report
Mr Clifton informed members that the National Programme and Economic Classification was a new report which would provide detailed quarterly in-year spending information in a readable format according to consolidation, votes and cashflow. The report would follow after the June expenditure projection. He said that members would be able to use the report to see what would form part of current payments, transfers and subsidies and payments for capital assets. This would allow members of Parliament to scrutinise departmental financial performance more closely and consistently.
Section 32 Quarterly Provincial Budget and Expenditure reports: NT Briefing
Mr Lemmer briefly explained which reports would be generated as part of the Section 32 process, as well as the provincial quarterly reports for the Joint Budget Committee.
Mr Lemmer informed members that reports would allow them to draw conclusions and to ask questions. Reports would show current spending trends against projected outcome and would enable members to see if projections were a reasonable reflection of the expenditure outcomes for the financial year. However, he warned that it was still early in the year so members would have to be careful when drawing conclusions.
Overview: Provincial Quarterly Performance Process
Mr Lemmer stated that Sound Performance Management Principles were implemented in national and provincial departments. The aim would be to standardise performance measures as there were some sectors that wanted to improve in this area.
Mr Clifton reminded members that the Vulindlela programme was launched as a management information system. This consolidated financial information from many different sources. Its purpose was to provide a central repository of very detailed spending and budget information, as well as revenue and asset and liability information.
Ms Kasienyane noted that Members that they would have to deal with the specifics of under and over spending, focusing more intensely on the reasons that it occurred.
Chairperson Mabe noted that there was a shortage of time. She informed Members that they would have a follow up on the process needed, for use by the portfolio committees.
The meeting was adjourned.