Provincial Spending on Conditional Grants & Capex: 3rd Quarter 2006/07: Treasury Briefings

NCOP Finance

04 February 2008
Chairperson: Mr T Ralane (ANC)
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Meeting Summary

The Chairperson noted that the Committee would be analysing the reports on the spending of provinces, and would be focusing in this meeting on matters of urgency. The Provinces that were represented were Mpumalanga, Northern Cape Province, the Free State, North-West Province, Kwazulu-Natal, Gauteng and Western Cape. Representatives from each gave a brief outline of the spending, highlighting those departments that were over or under spending and giving a brief outline of the areas of concern and the reasons.

The main areas of concern were with under spending of certain grants, under performance of certain departments and financial misconduct in the form of failure to comply with the provisions of the Division of Revenue Act. The Chairperson expressed concern that departments were receiving money although they did not have the capacity to spend it. Housing, Agriculture and Public Works were frequently raised as areas of concern for most of the provinces.

It was agreed that departments needed to be monitored more closely in terms of spending and their performance.

Meeting report

Provincial Treasury Briefings on provincial spending for Third Quarter
The Chairperson announced that the Committee would focus on the more urgent issues regarding conditional grants and spending.

Mpumalanga Briefing
Ms Elsie Coleman, Mpumalanga MEC for Finance, informed the Committee that there were two urgent matters regarding the Mpumalanga Infrastructure Grants, in relation to the Department of Health and the Department of Education. Meetings were held with Budget and Finance Committees, and it was impressed upon the Departments that the money needed to be spent. Issues within the Department of Health, however, still posed a problem and the MEC felt that an increase in spending would not have much of an impact.

Mr Rabeng Tshukudu, HOD: Finance, agreed that the Departments of Health (DoH) and Education (DoE) were problem areas for the province, especially with regard to infrastructure and infrastructure implementation. However, he assured members that interventions had been put in place in order to counter the problems.

Overall, 60% of the budget was spent. National Treasury (NT) was withholding the third instalment of the infrastructure grant – which was posing a problem for the province – because of  under spending in the DoH and DoE. It was projected that seven grants would spend their entire budget while four grants would under-spend.

Mr Tshukudu informed members of the challenges facing the DoE and DoH. He stated that department officials were not always available to act on issues but that the Treasury had initiated discussions with these departments as well as the Departments of Land and Agriculture, Public Works and Social Services. There was a lack of forward planning and poor alignment of planning on the budgeting side of infrastructure. Problems were also experienced due to late submission of infrastructure plans and limited capacity. Limited capacity contributed to prolonged recruitment processes.

Mr Tshukudu discussed monitoring mechanisms. Monthly reports would be given to the Budget and Finance Committees while quarterly reports would be presented to the provincial Portfolio Committees. Provincial Infrastructure Committee (PIC) meetings would be held together with the HODs for Finance and those responsible for infrastructure delivery. The DoE was expected to hand over a report in mid February indicating its turn-around strategy. The Departments would have to prove that they had dedicated people working on the infrastructure challenges.

Plans for 2008/09 were submitted and being evaluated. These indicated that the situation was likely to change.

The Chairperson stated that the first step would be to approach National Treasury (NT) on this matter. He said that Section 14 of the Division of Revenue Act (DoRA) was clear. In allocating funds, one had to take in to account the capacity to spend.     

The Chairperson also looked at Section 45 of DoRA that raised the issue of financial misconduct. Any persistent or serious non-compliance with the Act constituted financial misconduct. Under spending was another form of financial misconduct.

The Chairperson said that the Department of Public Works would be assessed, as the Committee did not understand why this Department wanted to outsource capacity. There was a capacity problem in the country but outsourcing should have been used as a last resort. The Department should have accessed funding and capacity building plans from provinces should have been approved first before funding was given.

Ms Coleman agreed and added that challenges would only be overcome if everybody worked together.

Northern Cape Briefing
Mr Pakes Dikgetsi, Northern Cape MEC for Finance, stated that the Province had experienced problems with the Departments of Health and to some extent, Roads and Public Works.

Mr Sello Mokoko, HOD: NC Provincial Treasury, informed the Committee that the Province projected to under spend by 3% of the adjusted budget and that it had spent 53% of the total infrastructure budget. Total expenditure on conditional grants amounted to 51% of the adjusted budget. Total capital expenditure amounted to 53% of the CAPEX budget.

Education capital expenditure amounted to 73%, which was an improvement from the previous year’s total of 68%. However, Department of Health capital expenditure declined to 66% of the adjusted capital budget. The most under spending had occurred in this department.

Mr Mokoko indicated that the improvement in the DoE’s spending was due to a better working relationship between the DoE and the delivering agent, Public Works.

Slow spending was a result of reprioritisation from existing projects to new projects that were not budgeted but that had to be undertaken.

With regard to health, 41% of the total infrastructure budget was spent. Spending declined from the previous year’s total of 54%. A major contributing factor was the roll over in respect of the Revitalisation Grant.

In answer to a question interjected by the Chairperson, the HOD confirmed that the working relationship between the departments and Public Works had improved.

In Agriculture and Land Reform, spending of the total infrastructure grant declined from 60% to 43%. Delays were due to non-compliance of suppliers with tender specifications and slow delivery by service providers.

Spending on infrastructure for Social Services and Population Development amounted to 65% of the total budget. The major reasons for slow expenditure related to the implementing agent, Public Works.

Mr Mokoko discussed Conditional Grants. He informed the Committee that most of the money that was received had been used for hospital revitalisation and disaster management. 75% of the total received funds were spent.

In Agriculture, under spending occurred due to slow delivery by service providers, re-advertisement of tenders as a result of incorrect information and implementation of projects delayed by environmental studies. 

With regard to Education, the Department had spent 107% of the total grant received thus far. This amounted to 80% of the adjusted budget. The Department of Housing spent 96% of its  adjusted budget and could be in danger of over spending.

The Chairperson informed the speakers that the North West Province and the Northern Cape would have to meet to discuss problems with regard to cost transfers. He stated that it was a matter that could not be compromised and that there were different standards to adhere to. The Northern Cape would have to do the necessary audits in order to receive the money owed to them by the North West.

The Chairperson queried the reasons as to why adjusted budgets were given when departments did not have the capacity to spend and no planning had taken place. This should not be allowed.

The Chairperson said it was necessary to monitor the Departments of Health as well as Public Works. The Committee would have to determine if the Departments had made plans to fix their own capacity issues. A plan would then have to be presented to the HOD for approval.

The issue of financial misconduct was once again addressed. Departments would have to be scrutinised in order to see if they complied with the DoRA. The Chairperson held that funds should not be withheld midstream but rather should be withheld at the next division of revenue. Changes should be effected in March.

Mr Dikgetsi stated that he would follow up on the departments, as Treasury wanted to adhere to DoRA. He also agreed that withholding and reallocation of funds should happen in advance.

Free State Briefing
Mr Donald Barlow, CEO: Treasury, Free State, said that in Free State 67% of the adjusted conditional grant budget had been spent. This constituted 90.1% of the amount transferred from National Treasury.

It was projected that Agriculture would spend only 37.2% of their grant while Education would overspend. Health and Sport would use their entire budgets. Local Government and Housing would under spend on their grants by 0.5% at the end of the financial year. Public Works, roads and Transport had spent 60.2% of their conditional grants and it was projected that the remainder would be spent at the end of the financial year.

Mr Barlow discussed the Infrastructure Grant to Provinces. Expenditure at the end of the third quarter amounted to 65.4% of the allocated grant.

The Chairman commented that even though results were good, he was worried about the whole picture. He stated that all departments were to be monitored, especially with regard to the projected quarterly spending. Broader discussions would be held at the end of the financial year. The Department of Housing would be given more attention.

At the end of the financial year, all departments would be held accountable. The quality of the outcomes would be checked to ensure that they were sustainable and to ensure that departments were not spending frivolously.

Mr Barlow assured the Chairperson that his comments were noted. With regard to health, projects had already been evaluated and were ready to be implemented.

North-West Province Briefing
Mr Geo Paul, Acting HOD: Finance, North West noted that with regard to conditional grant funds, expenditure amounted to 69% of the approved budget. Based on funds transferred by the National Treasury, expenditure amounted to 108%.

The Department of Health spent 71% of their approved budget, which amounted to using 90% of transferred funds. Funds were allocated to hospital revitalisation, health professionals training and development, comprehensive HIV and AIDS grant, national tertiary services, forensic pathology services and infrastructure grants. The lowest overall spending was in forensic pathology services, but some expenses would only be reflected in the fourth quarter report.

The Department of Sport, Arts and Culture spent 47% of their total approved budget. This was because the Community Library Service Grant had only spent 22% due to problems with late planning, tendering procedures, staff recruitment and training. Strategies to remedy the problem would be put in place in the fourth quarter.

The Department of Education was on track as they had spent 76% of their total grant. However, there was a concern that over expenditure would occur in the area of the National School Nutrition Programme. They were seeking assistance from the National Department of Education.

The Department of Local Government and Housing spent 63% of their total conditional grant. This amounted to 96% expenditure of funds transferred from National Treasury. No under spending was anticipated.

The Department of Transport, Roads and Community Safety spent 84% of their approved funds. This was an indication that grants could be exhausted by the end of the fourth quarter as they were on target.

The Department of Agriculture, Conservation and Environment spent 25% of their funds. This amount was far below the estimated 75% and as a result the department was being monitored closely. Agricultural engineers/technicians were appointed to strengthen the Project Coordination Unit in the fourth quarter. The Treasury and Department were working closely to ensure that implementation of projects occurred in the fourth quarter.

Mr Paul noted that there were challenges but that most departments were on target. 

The Chairperson asked if Mr Paul was discussing real spending or transfers.

Mr Paul stated that the figures indicated transfers from the National Treasury.

The Chairperson informed him that transfers did not equal real spending. Instead, Treasury needed to verify that the money was spent. There was unspent money sitting in accounts and it was misleading to record it as spent. They would need to comply with DoRA and transfer the unspent money to the Division of Revenue Fund.

The Chairperson noted that Housing was a problem that needed to be monitored. Agriculture had also regressed; and this was a matter that needed urgent attention.

Mr Paul assured the Chairperson that the money was not sitting in bank accounts as certain projects were to be undertaken.

Kwazulu-Natal Briefing
Mr S Leslie Magagula, SGM: Treasury, KZN, stated that 62.4% of the adjusted budget had been spent and that expenditure had increased over the quarters, except for education.

Department of Education spent 59.9% of their adjusted budget while Health spent 63.7%. Transport was at 68.3% of the adjusted budget and it was projected that this department would spend its entire budget.

Mr Magagula discussed conditional grants. According to the reports, 67.7% was spent at the end of the third quarter.

Agriculture posed a problem. The Department had spent 14.7% of its adjusted budget. There were issues of slow spending and project implementation and it was unlikely that the Agriculture Disaster Management Grant would be spent. Relations with the Department of Agriculture were strained as the Department felt that the Treasury was intervening too much.

The Chairperson commented that this was a problem. He said that the Committee would discuss the issue with the Department of Agriculture the following day. He proposed that they hold a joint meeting with the National and Provincial Departments of Agriculture as well as the National Treasury. The issue needed to be resolved. 

In Education, 68.5% of the adjusted budget was spent. With regard to Health, expenditure stood at 70.6% of the adjusted budget. Spending was ahead of schedule except for Forensic Pathology Services and the Hospital Revitalisation Grant.

The Department of Housing spent 68% of the budget. Spending was on track and it was projected that the entire budget would be spent at the end of the financial year. The Department of Arts, Culture and Tourism spent 63% of their budget and trends indicated that the entire budget allocation would be spent by year-end. Sport and Recreation spent 72% and projected that the entire budget would be spent at year-end.

Mr Magagula concluded by saying that more assistance would be given to Department of Agriculture.

The Chairperson stated that there was a need to monitor departments more closely and there were matters that needed to be checked more thoroughly. Discussions should be held with Agriculture as well as Education. The issue of requesting more money when departments did not have the capacity to spend it would have to be addressed.

In respect of Agriculture, the Committee would have to talk about financial misconduct. They needed to know what actions the National Departments had taken.

Gauteng Briefing
Mr M Vilakazi, Director: Gauteng Treasury, said that with regard to Infrastructure Grants, actual expenditure was 70.8% of the allocated budget. 87% of the infrastructure grant was allocated to capital projects while the rest was allocated towards maintenance projects.

He discussed grant expenditure with regard to capital projects.

The Department of Health spent 81.1% of its budget, Education spent 86.7%, Social Development spent 20.3%, Housing used 77%, Public Transport and Roads used 55.6%, and Public Works used 42.9%.

Agriculture, Conservation and Environment spent a low 20.5% of their budget due to poor project planning. This was a problematic area for the province. According to the Director, most of the projects were still at the planning stage. Low spending in Social Development was also due to poor project planning.

The Department of Education was expected to overspend as it had submitted incorrect projections. The Department of Health was also expected to overspend due to increased costs of the department’s revitalisation strategy that would be rolled out.

Mr Vilakazi briefly discussed infrastructure spending with regard to maintenance projects. Housing over spent on its budget while Health and Education seemed to be on track. Agriculture, Public Works and Social Development were under performing.

Mr Vilakazi looked at the sectoral infrastructure analysis. According to the analysis, it was projected that the Department of Health would experience a year-end over-expenditure.

There had been challenges in the Department of Public Transport, Roads and Works. Problems were encountered in the maintenance programmes, which resulted in backlogs. There were also delays in the procurement processes, which had slowed the construction of roads.

With regard to Social Development, slow spending was attributed to delays experienced during the planning stages with the new implementing agents. The Department of Agriculture, Conservation and Environment was in the process of undergoing upgrading and maintenance works at existing facilities at provincial nature reserves.

The Chairperson stated that he was happy with the report and the strategy employed in the Department of Agriculture, Conservation and Environmental affairs where the budget was adjusted. He said that other departments were to be monitored.

It was noted that departments asked for money when they did not have the capacity to spend it. This process needed to be reversed. The Committee would need to look at planning and misalignment, as they were critical factors.

The Chairperson urged the Director to monitor Education and Public Works. He noted that the Department of Public Works was not geared to perform all their duties. Housing was also a worrying issue. The Department seemed to be on track in terms of spending, yet they would be given more money. The Chairperson queried whether this was necessary, as it did not need the extra money.

Mr Vilakazi stated that one had to look at the figures. It was not likely that the Department would experience any funding issues.

The Chairperson noted that Department of Sport seemed to be funding huge projects that it should not be doing. This was worrying and needed to be monitored.

Western Cape Briefing
Mr Harry Malila, Head of Public Finance: WC Treasury, discussed conditional grant expenditure. In Education, 92.6% of the budget was spent. Within that department, the lowest spending was on the HIV and AIDS Grant at 56% while all other spending on grants was on track.

With regard to Health, the Department spent 73.8% of the adjusted budget. All spending seemed to be on track except for the Forensic Pathology Grant, which was at a low 42%. Some of the issues associated with this grant related to lack of skills and personnel as well as to contracts that were not on par.

Mr Malila expressed concern over the Housing Grant. The Department spent 52.5% of its allocated budget. This was due to community issues, and meetings had been planned with Treasury to discuss matters. 

In Agriculture, only 36.4% of the conditional grant was spent. The problem area lay with the Agriculture Disaster Management grant. There had been no transfers from the Treasury. There were also other unresolved issues, which would be seen to.

In Cultural Affairs and Sport, there was also under performance as this Department had spent only 57.4% of the grant. Here, most of the issues related to community involvement. Problems were experienced with regard to the community library service grant.

The Department of Education experienced over-expenditure of the grant, due mainly to over spending on the National School Nutrition Programme and the Infrastructure Grant to Provinces.

Mr Malila discussed the Infrastructure Grant to Provinces. Both Health and Education had overspent on their grant while Transport and Public Works spent 89.5% of the allocated amount.

He noted that there were continuous engagements with departments to seek solutions to problems. There was also rigorous engagement at Cabinet level and frequent interactions with departments on spending performance. He noted that Agriculture was an important issue but was mainly concerned with the Housing grant and the community issues.

The Chairperson stated that reasons for the decline in spending in HIV and AIDS grant would have to be monitored. He also noted that there was an issue with the Forensic Pathology Services Grant.

According to the Chairperson, HIV and AIDS Skills spending in Education was behind compared to previous years spending. Meetings would be held with the Education MEC. The Department of Agriculture’s performance was also disappointing.

Over spending within the Department of Education was worrying. The issue of their capacity needed to be addressed. The spending of the Community Library Grant was also of concern.

Mr Malila thanked the Chairperson and stated that they would engage with the relevant departments.

The meeting was adjourned.


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