Conditional Grant and Expenditure Spending: Health & Education Departments: hearings

NCOP Finance

12 November 2007
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Meeting report

SELECT COMMITTEE ON FINANCE

SELECT COMMITTEE ON FINANCE
13 November 2007
CONDITIONAL GRANT AND EXPENDITURE SPENDING: HEALTH & EDUCATION DEPARTMENTS: HEARINGS

Chairperson: Mr T Ralane (ANC)

Documents handed out:
Provincial Budgets & Expenditure as at 30 September 2007 National Council of Provinces Hearings
Province of the Eastern Cape Department of Health Presentation
Province of the Northen Cape Department of Health Presentation
North-West Province Department of Health Presentation
Free State Department of Health Presentation
Presentation of the Second Quarter Outcomes in respect of the 2007/08 Conditional Grants as at 30 September 2007
Limpopo presentation of Conditional Grants and Capital Expenditure
Western Cape Department of Health Public Hearing on Conditional Grants for the 1st and 2nd Quarters

Audio recording of meeting [Part 1]
[Part 2]

SUMMARY
The National Treasury, followed by Provincial Departments of Health, briefed the Committee on their first and second quarter spending on conditional grants and capital expenditure. The Committee commended the departments for their hard work but also highlighted the fact that departments needed to focus on their under expenditure patterns as they are equally important. The report submitted by Free State was said to be too short and not providing much information, except that it noted the likelihood of over spending.  The Eastern Cape was requested to pay special attention to the issue of transport as the members were not pleased with their terms of the contract with Fleet Africa. The North West province had showed an improvement, albeit a slow one, with the number of qualifications reducing. Infrastructure grants showed the most under expenditure in most of the provinces and it was suggested that provinces seek assistance and guidance from Provincial Treasury in trying to overcome this.

The presentations of Gauteng, Limpopo and the Eastern Cape listed the challenges each province was experiencing. In Gauteng focussed specifically on the provision of the Provincial Infrastructure Grant. There were under expenditure because of challenges presented by the Department of Public Works. Limpopo experienced issues with the implementation agents who were lacking in their duties even though a business plan was provided. Monitoring was provided however for the expenditure. Personnel not abiding by proper procedures and the misappropriation of public funds challenged the Eastern Cape.

The Eastern Cape Department of Education then briefed the Committee on the challenges it was facing, which had largely to do with the cancellation of the School Nutrition Programme, and problems of capacity. The Chairperson commented that the matter of the infrastructure grant was important. There were concerns that the bulk of the funding was going to roads. There were three portfolios to benefit from the infrastructure grant, yet their budgets were declining each year. The growth for the Eastern Cape was only 4,6, and if the conditional grants were stripped he wondered what would sustain service delivery.

It was resolved to arrange a meeting with all the provinces, provincial treasury as well as the Department of Public Works, as it seemed as the Department of Public Works were creating serious problems.

MINUTES
National Treasury Briefing on spending patterms
A representative from National Treasury noted that the problem of under spending was getting worse in this financial year. 7 provinces projected over expenditure as at 30 September 2007 and 5 of them actually over spent last year. KwaZulu Natal surprisingly projected R366 million over expenditure. Personnel expenditure drivers in the health sector were the nurses’ wage deal and implementation of Dispensation 1. Spending on HIV/AIDS grant was quite strong. Spending on Forensic Pathology had improved but there was wide variance across the provinces with Mpumalanga and Kwa-Zulu Natal reporting the lowest.  The Hospitalisation Revitalisation Grant spending improved but a large proportion of this related to building of new hospitals.

Provincial
Briefings on the Second Quarter expenditure for the Department of Health:
Eastern Cape Department of Health
Ms Nomsa Jajula, MEC for Health, Eastern Cape, made a presentation about the expenditure trends of the various provinces. She said that the Department could not get what it needed all the time. Ms Jajula acknowledged under spending on personnel and said the reason for that was lack of skilled people in various other posts. In relation to equitable share, spending was difficult because of lost capacity in the department of Public Works. Some of the challenges faced by the Department related to capital, human resources and financial management. She said that National Treasury was assisting the department with weekly monitoring measures.

Dr Nandi Diliza, Acting Superintendant General, Eastern Cape Department of Health, added that the under spending for HIV/AIDS was due to the business case was approved late which resulted in late expenditure. She said that the Department had planned to have 40 000 patients on treatment but as at 30 September 2007, they only had 35000. The Forensic Pathology sector overspent by 21.8%. The Health Professionals Training & Development (HPTD) grant was under spent by 13.2% because funds to Walter Sisulu University for the second Quarter were withheld due to non-submission of progress reports.  A Service Level Agreement with Rhodes University for Doctorate in Pharmacy Programme was finalised in October.

The National Tertiary Services grant’s main challenge was to secure funding in order to extend Oncology Services to Nelson Mandela Academic Hospital. The Revitalisation grant was under spent by 12, 3%. The Construction of Frontier, St Lucy’s, Madzikane kaZulu, St Patrick’s and St Elizabeth was underway and on schedule.

Discussion
The Chairperson commented at this stage that health budgets were declining in all provinces and raised concern that it seemed as though people were not taking health seriously. He then requested that the discussion should centre on challenges faced in the provinces and what the provinces were doing about them.

Mr M Robertson (ANC) (Eastern Cape) said that when he was in his constituency hospital officials were using their own transport for medical reasons, because subscription fees had not been paid for the courier services. He sought clarity on that.

Dr Diliza responded that that was a management problem. She said the problem was with capacity and this unfortunately was highlighted at senior management. The Department has since then paid the courier company and the company would start its service.

Ms D Robinson (DA, Western Cape) asked what was happening to safety of babies right now. She also asked whether the Department had sorted out the HR problem.

Ms Jajula responded that Frere hospital did not have a crisis with respect to equipment, but the problem of babies dying at birth was a world problem, and a world conference was held in Port Elizabeth to review this problem. She said that the issue was a closed book.

Mr E Sogoni (ANC, Gauteng) commented that the department received an adverse audit opinion and then asked what kind of capacity the province was building, and whether the Committee could be assured that next year there would not be a qualification in their report.

Ms Pumla Vazi, Executive Manager, Eastern Cape DOH, responded that the Department had recruited BComm students and offered training to them. The Department had to employ a project manager and unemployed graduates. The head of Department overlooked this whole process and met with HR to monitor progress.

Mr E Sogoni (ANC, Gauteng) asked whether the Department had an audit Committee, and who chaired this audit committee.

Ms Jajula responded that the Department did have an audit committee, which failed to do its job. She said that the audit committee’s term of office had come to an end and a new committee would be appointed.

The Chairperson commented that Provincial treasury had said in their report that the Department’s transport was outsourced, and asked whether this was true and the reasons for it. He then asked what the Department was doing to make Provincial treasury address the problem of the suspense account. He also asked what the Department meant by saying that it had financial constraints.

Ms Jajula responded that the Department did not really outsource its transport but rather had a contract, which was taken by the Eastern Cape as a province, to have an outside company run the fleet. The Department managed the fleet. She said that the Department was not pleased with the type of vehicles supplied but they could do nothing about it until the contract is over.

The Chairperson commented that the Service Level Agreement should have been agreed to.

Ms Jajula that when the Department received a vehicle that was not up to standard, they would send it back to Fleet Africa to be corrected. This affected service delivery and spending patterns. She said that they could not stop the contract with Fleet Africa because the Department of Transport must end it. The Department had decided that when the contract ends, the next one must not include emergency vehicles.

Mr Sogoni suggested that Eastern Cape Provincial Treasury and the Department of Transport should be called in together with the Department of Health in order to clear the matter about transport. Mr Sogoni then asked then asked whether any people had been charged for the irregular expenditure that received a matter of emphasis response from the Auditor General.

Ms Vazi responded that consultants had been appointed to deal with the matter. The issue was being investigated with the process being lead by Treasury.

Ms Diliza added that at the moment no one had been charged and the Department was currently waiting for guidelines from Treasury so that they could charge the correct people.

Mr Robertson asked whether Fleet Africa was a national or provincial company.

Ms Jajula responded that it was a provincial company.

The Chairperson requested that the delegates pay close attention to the issues discussed and those that caused the department to receive an adverse audit opinion.

Ms Jajula confirmed that she would attend to this

North West Province Department of Health
Dr Lydia Sebego, Superintendant General, Department of Health, North West, opened her presentation by saying that the Department had spent 96.2% of its budget, with under spending of R137million. Although the Department’s audit report was qualified, there had been marked improvement as the qualification areas were reduced from six to three and the seriousness of qualifications has also had reduced. A turnaround strategy to implement remedial action had been developed and was being monitored on a monthly basis.

The challenges faced by the Department were staff turnover at ARV sites, budget allocation for infrastructure grant, slow progress on revitalisation projects, and recruitment of medical specialist. Interventions for delaying with these included monthly monitoring of expenditure, project and construction management, strengthened Service Level Agreement monitoring of agents, monthly reports from Agents and bi weekly reports to monitor Division of Revenue Act (DORA) conditions. As monitoring mechanisms, variance reports were submitted to the Executive Management and a meeting was held every two weeks to identify blockages and remedial action. There was also regular monitoring of expenditure and commitments.

Discussion
The Chairperson commended the department on the fact that spending had improved since 2003 even though it was at a slow pace. He said that the risk lay with underspending.

Mr Z Kolweni (ANC, North West) asked whether the department’s internal controls were working well. He then asked what the Department was doing about the professional staff shortage and the reason behind non-delivery of ambulances.

Mr Sogoni (ANC, Gauteng) said that he agreed with the MEC that The North West Province Health department was not yet in dire straits as there was an improvement in their performance.

Mr Sogoni asked what the capital infrastructure from the equitable share was, and the number of vehicles from outside.

Ms Rachel Rasmeni, North West Health MEC, responded that the department had a staff shortage because they were unable to attract health professionals and had lost staff through the year.

Free State Department of Health
Ms Sylvia Khokho, DDG, Free State Department of Health, commented that the Department had over spent on the forensic pathology grant and the infrastructure grant. Provincial expenditure reflected over expenditure of R166 million. High staff turnover reduced spending, as did late approval of budgets and decreased supply chain management capacity.

Discussion
Mr Sogoni commented that the Free State had just submitted a two page summary to the Committee, which had very little financial information. He then requested that the department elaborate on the spending of the infrastructure grant. He also requested that the National Department responded as well.  He also said the Department had advertised vacancies in the Sunday Times but it seemed to be strange that so many people were resigning. He asked why employees were not taken care of.

The Chairperson asked what the implications of over expenditure were and asked whether there were any plans in place.

Ms Khokho responded that the Department had put in place a system that attempted to deal with how the Department contained its costs.

Mr C Van Rooyen (ANC; Free State) commented that the Department had to submit business plans and these normally had a financial section. He asked what the quality of the business plan was if the Department was faced with over or under expenditure of this magnitude.

Ms Khokho responded that at the start of the financial year last year, the Department had already told Treasury that it would have over-expenditure, based on their spending trends. He said that over expenditure was mainly in the goods and services sector.

Gauteng Department of Health
Ms Sybil Ngcobo, Head of Department: Health: Gauteng, thanked the Committee for their assistance in the provision of the Provincial Infrastructure Grant (PIG) that appeared as an allocated amount. She said that there was under expenditure because of the challenges faced with the transfers to Public Works.  These amounts were always reflected a month after the transaction until it was possible to get integration between the systems. The Hospital Revitalisation Grants amounting to R39 million and the Coroners Services were mainly systemic issues. They had met with Provincial Treasury to have an additional amount allocated for the adjustment budget because of the over expenditure that was projected.

The Chairperson thanked them for this engagement. The Committee was unaware, until now, that the PIG was withheld because of the under performance of one sector.

Limpopo Department of Health

Dr Jabulile Dlamini, Head of Department: Health: Limpopo, presented the challenges of over and under spending on the grants. These included delays in receipts of invoices. The over spending in the health profession training and development was transferred to the equitable share. In respect of hospital revitalization the Provincial Treasury had issued a directive to continue spending, with a commitment that it would be funded, and this resulted in over-expenditure. The province was currently working on solutions with the assistance of the MEC of Limpopo. The Department was monitoring and working closely with the province. There was a cash flow in the province. Another challenge was the problem the province had with the Infrastructure Equitable Shares. The province was struggling with the implementation agents even though the agents received a business plan. However the Department had monitoring meetings with agents and was monitoring the expenditure. Their allocation of the equitable share was only 23%, and not 26% in line with the specific allocation that the province was supposed to receive.

Discussion
The Chairperson noted that it seemed as if there were serious problems with the Department of Public Works and suggested a more thorough discussion with that Department. He added that the expense account of officials should be dealt with.

Mr D Botha (ANC; Limpopo) asked if it was possible that in the fourth quarter the Committee meet with National Treasury, the Provinces and the Department of Public Works.  If the Committee met each sector separately then each sector had different explanations.

Western Cape Health Department
Mr Mike Manning, Director of Health: Western Cape, was delegated rather than the Head of Department (HOD) or the MEC of Health to present the expenditure to the Committee.

The Chairperson accepted the presentation as submitted and continued to the next item on the agenda.

Mr M Robertson (ANC; Eastern Cape) was insulted that the HOD sent a director to report on such important issues. He thought that more severe action should be taken.

Mr E Sogoni (ANC; Gauteng) said that it was a pity that there were time constrictions. He suggested that in future the time be managed more tightly.

Eastern Cape Education Department

Mr Johnny Majgato, MEC of Education: Eastern Cape, explained the Conditional Grant and mentioned that the Department of Education did not get any funds from PIG. In the current financial year they received R50 million out of the allocation to be able to deal with the infrastructural commitments. The Service Delivery Model was also questionable as it took ten months to plan to build a school and then a further fifteen to twenty months to actually build the school. The province engaged with KPMG to work with Treasury. As a result the Deputy Director and the Chief Director had been suspended because of the anomalies that were discovered, including the fact that documents were being signed without proper delegation, that duplicate payments were made in terms of transfers, and that there were discrepancies between the money sent by the province to Independent Development Trust (IDT) and the money received by IDT. An amount of R87, 5 million that could not be accounted for had slowed the Department. A turn around strategy had to be developed as more people were involved, in order to rectify the infrastructure.

There was a programme running for orphans and vulnerable children, who posed a particular challenge in the Eastern Cape. Children had been placed with caregivers. There was also a peer-group trainer programme that was growing rapidly.

In terms of Further Education and Training (FET) recapitalisation, there were discrepancies, especially in terms of capacity. The discrepancies were showing in the expenditure. The National School Nutrition programme (NSN) had to be dismantled due further discrepancies. The current tender was more concrete. There were two investigations and four senior officials and four middle management officials had been formally charged. In the future the NSN would feed children from Grade R to Grade Seven.

Ms Nomlamli Mahanjana, Superintendent-General: Department of Education: Eastern Cape, highlighted the innovation made in order to ensure that the nutrition programme reached its intended objective. Currently the expenditure was at 47%, in part because payments had been withheld from the bulk of the service providers for the past financial year. Since the release of the investigative report, the Department could now know which companies had been cleared to receive payment. The number of inefficiencies resulted from a high vacancy rate. The Department had managed to appoint 69 school nutrition coordinators, at least three per district. Proper procedures had been set up to correct payments systems and people were appointed to perform monitoring duties. Due diligence was paid to all service providers that would be appointed, as they had secured a tender for the next financial year.

Ms Pumla Vasi, Chief Financial Officer: Department of Education: Eastern Cape, gave a more thorough explanation of the infrastructure. A decision was taken to dismantle the programmes that were highly problematic. A complete new team had been put in place to ensure expenditure followed procedure. The areas to address had been prioritised. A rapid infrastructure programme had also been put in place. In terms of the FET there were varying terms of competence. Those who had low capacity had been given intervention plans in order to better their capacity. In reference to HIV/AIDS the Eastern Cape had one of the best programmes; it was the supply chain management that had caused chronic problems. A reshuffling of senior management and appointment of new senior leaders had resulted in sixteen new tenders.

The programme managers had recovery plans that would be monitored on a monthly basis. In the school nutrition programmes all appointments had been finalised to manage the monitoring of suppliers and payments were made on time. The FET Colleges that were spending too slowly were given recovery plans. The total expenditure of R38, 9 million and thus far the total spending was R26, 2 million. The actual spending of was FET 69% based on actual transfers up to the end of September, school nutrition programme was 46,7 % and the projection indicated that there might be an overspending, because of an increase in enrolments since August. The recovery plan indicated that there would a spending amount of R339,6 million. A number of internal control measures had also been put in place.

Discussion

Mr Robertson proposed that the Department was long overdue for an overhaul. He proposed that the MEC and the new staff are given chance under the third quarter. The problems with the Public Works were serious.

Mr van Rooyen asked about school nutrition, noting that the additional R97 million was not mentioned, only the R237 million was mentioned. If the R97 million was taken into account then the actual expenditure was less that 40%.

A Member asked if the figures from the Department of Education to National and Provincial Treasury, were different to what was presented here. He asked if the HOD had signed off on figures that did not tally with National Treasury’s figures.

Ms Vasi replied that the integrity of the figures and the signing of payments was one of the highest risks. In order for them to be confident in terms of the overall budget and the consistency in terms of figures, they had approached the provincial treasury in order to give assistance to dismantle the baseline, and to have a collective understanding and accountability.
           
Mr Majgato added that the R97 million was a rollover from the previous financial year.  The people that were suspended had started a company where they had been paying themselves with public funds. When their activities had been discovered payments had stopped. Those funds would go forward to pay those service providers that had been cleared by the investigative report.

Mr Sogoni thought the notion was sound but the practicality was problematic. Each budget was calculated over a number of years according to the needs of the people, but each time a new requirement developed the budget would have to be adjusted and this was problematic. He asked if there should be an alternative.

Mr Majgato replied that infrastructure was one thing but the division of revenue did not provide money to feed each child. It was not about affordability; it was about ensuring that each child had a meal. The Department was working with Department of Social Development. The nutritional needs had to be addressed since the children were in the developmental stage.

Mr Van Rooyen commented that firm action had to be taken against the culprits who were causing the discrepancies.

The Chairperson commented that the Committee had raised the matter of the infrastructure grant and was still not satisfied. The Eastern Cape received a bulk amount of R1 billion that was supposed to provide for three portfolios. He asked if all three portfolios had received their portions, he suspected that the bulk of the funds had gone to ‘roads’. He added that the province had been given R50 million to deal with the school nutrition programme yet challenges remained. He was also concerned with the issue of adding to the number of children being fed. There were three portfolios to benefit from the infrastructure grant, yet their budgets were declining each year.  The growth for the Eastern Cape was 4,6%, the lowest of all the provinces. If the conditional grants were stripped he wondered what would sustain service delivery. It was clear that Provincial Treasury was not providing assistance, as the bulk of the funds went to improve roads, while other areas of the infrastructure declined. There had to be a way of resolving the matter with the Eastern Cape.

Mr Majgato commented that the province urgently required roads. It was extremely difficult to transport materials in order to build schools; this was just another reason why roads were vital.

The Chairperson responded that he had noted that approximately R80 million had been given to Agriculture and Land Affairs and Sport and Recreation. However, only R50 million was awarded to Education. ‘Roads’ received R838 million of the grant. The Committee was interested in the province’s political decisions versus what the law dictated. However the Committee would allow the MEC and his new team to continue with its efforts to turnaround the province.

Ms A Mchunu (IFP; Kwazulu Natal) thought that the lack of growth in the Eastern Cape was placing the province at a disadvantage.

The Chairperson commented that all nine provinces were assisted by the Department of Public Service and Administration (DPSA) yet the funds never indicated this issue. Whilst national allocations were increasing, provincial budgets were decreasing. He proposed that a discussion must be held with their colleagues in the provincial legislature.

Mr Majgato added that it this anomaly that was mentioned by himself at an earlier stage. He thanked the Committee. He informed the Committee that the supply chain manager had started a cash-loan business using the public funds. These types of challenges were what the province was facing.

The Chairperson thanked the delegations and adjourned the meeting.


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