National Expenditure 2007/08: Treasury briefing & Department of Transport expenditure

Budget Committee on Appropriation

30 May 2008
Chairperson: Ms L Mabe (ANC)
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Meeting Summary

National Treasury presentations outlined the preliminary expenditure outcome summary per department, general spending trends per major department, spending highlights, last quarter spending, virements and major expenditure deviations. The Chairperson noted that the Committee’s concern was not necessarily under expenditure, as it merely wanted see that funds were effectively spent. Members asked for comment on whether an investigation was undertaken to determine how allocation to various Departmental sub-programmes took place. National Treasury was also asked to state whether it handed out funds to Departments who failed to reach government’s objectives. Members also sought clarity on the vacancy rates and how they impacted on the Departmental plans and ability to spend.
The Department of Transport outlined the expenditure on compensation of employees, transfers payments and budget challenges. The presentation also touched on the Public Transport Infrastructure and Systems (PTIS) grant projects, the South African Rail Commuter Corporation (SARCC) and the South African National Roads Agency (SANRAL). T
he Chairperson asked for clarity on how the Department assisted the municipalities in the efficient spending of funds. Members noted that the provincial roads were in a terrible state, and asked the Department to comment on how they assisted the provinces in the maintenance of roads. Members also sought clarity on why there was a huge under spending during the financial year, and on the measures that had been taken to find adequate skills to fill the vacancies. The Department was also asked to indicate what the critical areas were that did not receive any funding.

Meeting report

National Expenditure Trends 2007/08: National Treasury (NT) Presentations
Social Services Expenditure
Dr Mark Blecher, Director: Social Services. National Treasury, outlined the spending trends over the last year by the Departments of Education, Health, Social Development, Arts & Culture, Sport & Recreation, and Labour. He also touched on the vacancy rates and expenditure in the last quarter. It was noted that 96,2 % of the available funds in the six departments consisted of transfers and subsidies. These transfers were mainly social assistance grants in the Department of Social Development, and conditional grants to provinces and to local government. He explained that the under expenditure arose from delays in making transfers due to late submission of business plans and compliance by NGOs with service level agreements. There were 2 274 vacant posts across all six Departments, which was 25% of all total posts in the social services sector. During the last quarter social services spent 58% of their capital expenditure budget. The Department of Arts and Culture had spent 100%.

Mr G Schneeman (ANC) asked for clarity on how National Treasury interacted with the Departments in terms of under-expenditure, and asked whether Departments were able to state the impacts of the under expenditure. Clarity should also be provided on whether National Treasury had withheld funds from Departments until funded positions were filled.

Dr Blecher replied that National Treasury received monthly reports from the Departments and constantly interacted with Departments in addressing key issues. Towards the end of the year a meeting would be held in order to discuss the issue of roll overs. In respect of vacant posts, it was clear that some of the vacancies were due to lack of funding, and in order to fill the posts there would be a need to allocate more funding. The matter was more of a call of judgement in the budget process by parliament.

Mr M Swart (DA) asked for clarity on where provinces received their transfers for educational services. National Treasury was also asked to comment on whether they followed up on whether the transfers were indeed spent on the services that provinces and local government had said they would spend the funds on.

Dr Blecher replied that the provincial Departments of Education were funded by the provincial equitable share. There were various other small conditional grants given to provincial departments, and these included the grants for the School Nutrition programme. The Parliamentary Select Committee on Finance was very strict in monitoring the spending of conditional grants and the equitable share to provinces. The monitoring was weakest at local government level.

Ms L Fubbs (ANC) asked for comment on who received the interest from the funds that had been transferred. Clarity should be provided on the different salary levels for the various departments. National Treasury should also comment on the unfilled vacancies and whether the accumulated increase in expenditure could be related to nominal and real growth.

Dr Blecher replied that the interest question would be addressed in the next presentation. He said that there were 15 different salary levels across governments, where specialists tended to be on levels 11 and 12. On nominal versus real growth, he said that the overall 15 to 16% increase was still fairly high above the rate of increase.

Ms R Mashigo (ANC) asked how the Division of Revenue Act was implemented and also sought clarity on how National Treasury treated the issue of roll overs.

Dr Blecher replied that the Division of Revenue Act (DORA) governed the use of conditional grants, and matters pertaining to the Act were dealt with by the Select Committee on Finance. In respect of the roll overs, he explained that National Treasury usually had a process for roll overs. Reports were submitted and there was a roll over committee to consider the roll overs. There were certain strict rules to govern the use of roll overs. National Treasury, however, understood that certain projects took longer than 365 days to complete.

The Chairperson said that the Committee’s concern was not necessarily under expenditure and that National Treasury should see how they could provide the Committee with information on continuous expenditure trends.

Mr Swart noted that certain local government departments were allocated funds, although they had not provided adequate business plans.

Mr Schneemann asked for clarity on the cash flow expenditure spike.

Dr Blecher replied that the matter would regularly be presented to the budget council, where Treasury looked at Government expenditure projections. There were times where spending tended to be lower than expected.

Justice and Protection Services
Mr Velile Mbete, National Treasury representative, said that Justice and Protection Services included Correctional Services, Defence, Justice, South African Police Services (SAPS), and the Independent Complaints Directorate. The presentation outlined the virements, March spikes, spending items, personnel growth and vacancy rates, infrastructure growth, and the Auditor-General reports. In respect of the virements, he explained that the bulk of the funds shifted were to and from the compensation of employees in various programmes in safety and security.

The 2007/08 Adjusted Estimate process for defence was mainly from savings identified in the Special Defence Account's operating funds. The savings were used to fund various shortfalls in other programmes in respect of the compensation of employees. It was noted that R83 million was rolled-over for the repair and maintenance of defence facilities. The Department of Justice received a qualified audit from the Auditor General, which was largely due to the
asset register not being updated with all additions for the year, and failure to implement the policies and procedures for maintaining assets forfeited to the State, which fell under that Department’s control. The Department of Safety and Security was the only Department in the cluster which received an unqualified audit opinion.

Mr Swart asked for clarity on the critical post vacancies and whether these were funded posts. Treasury should also explain the abbreviations used in the presentation, as they were very confusing.

Ms Fubbs asked for clarity on where was the root cause of the delay in building and renovating government facilities by Department of Public Works. She also asked for details of whether the spending on ICT was part of the under spending in the Department of Justice and Constitutional Development (DOJ). National Treasury should comment whether an investigation was undertaken to determine how allocations to various Departmental sub-programmes took place. Further, she asked National Treasury also to comment on the allocation that had been made to the legal aid system, and whether that allocation was sufficient.

The Chairperson noted that the 100% expenditure for SAPS was difficult to believe and highly questionable.

Mr Mbete replied that the critical vacancies were of concern. The posts could not be filled for a number of reasons; however there had been an improvement in the filling in of vacancies from the previous financial year. National Treasury was putting pressure on DOJ to fill the vacancies. In respect of the buildings, he explained that the Departments would pay Department of Public Works to perform certain functions. He said that most of the delays emanated from the receiving of funds from the Departments. DOJ took funds from other sectors and diverted this to the ICTs. He reported that the S A Police Service (SAPS) was doing well. Their funds were monitored on a daily basis and should be seen as a benchmark by other departments. In regard to the legal aid system, the Committee should note that not all cases that had been reported to the police ended up in court. Many cases were withdrawn. National Treasury however increased the spending to the Legal Aid Board, in an attempt to raise the numbers of officials that could be present to deal with cases.

National Treasury Presentation on Urban Development and Infrastructure
Mr Mahesh Fakir, Director: Public Finance, National Treasury
outlined the spending trends by the Departments of Transport, Housing, Provincial and Local Government, Water Affairs and Forestry, Minerals and Energy and Communications. He noted that in regard to the spending patterns, 76.2% of the total goods and services budget was spent in 2007/08, leaving R137 million unspent. 76.7 % of the goods and services spending was spent on consultants, contractors and special services, and of this 19.3% was spent in March 2008.

Mr Fakir noted that the vacancy rate for senior management service posts was 44.8%.

Mr Fakir reported that the National Treasury received nine requests for virements during the financial year. During the last quarter, these Departments had made unusually high transfers in respect of the equitable share and Municipal Infrastructure Grants (MIG), resulting in 38.8% expenditure. As at the end of March 2008 an estimated 80% of MIG funds transferred by the departments had been spent by municipalities.

National Treasury Presentation on Economic Services
Mr Mahesh Fakir and Simon Mpahla, National Treasury representative, outlined the spending trends by the Departments of Agriculture, Land Affairs, Environmental Affairs and Tourism, Public Enterprises, Science and Technology, Trade and Industry. They noted that the Department of Agriculture spent 72.7% of the total transfer. Reporting on the virements, they noted that R77.04 m was shifted from current expenditure to transfers and subsidies, and payment on capital assets.

 During the financial year the Department of Agriculture had underspent. The key projects for the Department of Environmental Affairs and Tourism included the Extended Public Works Programme (EPWP), which focused mainly on areas such as coastal development, tourism infrastructure and tourism product development, waste management, biodiversity and conservation. During the adjustment period an additional R200 million was rolled over for the programme, and R30 million for doing feasibility studies had related to Departmental projects.

Ms Fubbs focused on the Department of Land Affairs and noted that restitution and land reform were key areas of government’s objectives. National Treasury was asked to report whether it had given funds to Departments who failed to reach government’s objectives. The issue went to the heart of the principles of allocation, and National Treasury should seriously consider the matter. Treasury should also comment on whether funds were allocated to land restitution without any support services. If this was the case then land restitution was surely set to fail.

The Chairperson asked National Treasury to continue with the presentations due to time constraints

National Treasury Presentation on Administrative Services
Ms Liesel Eksteen, National Treasury representative, noted that administrative services included Parliament, the Presidency, Public Works, Foreign Affairs, National Treasury, Statistics South Africa, and the Department of Home Affairs. The presentation outlined the Preliminary expenditure outcome summary per department, general spending trends per major department, spending highlights, last quarter spending, virements and major deviations.

Spending data for the Department of Foreign Affairs showed an increased capacity to spend. During the 2007/08 financial year this Department received a significant growth in allocation and spent 98.8% of the total budget. The major increases in spending were partly attributed to the goods and services and mission spending. With regard to the Department of Public Works, the data showed a slight increase in actual spending, despite a lower percentage of the available funds being spent. The Department spent 90.5% of its allocated budget during the 2007/08 financial year compared to the 97.1% expenditure in previous financial year. The main area of under spending was the provision of land and accommodation.

Ms Fubbs asked for clarity on the skewed spending and asked what the view of National Treasury was on the reasons advanced by the Departments. She asked for comment on foreign affairs spending and the measures that had been undertaken to address the matter. She also asked for comment on the current state of Persal, the personnel management system, and the time it would take to fix Persal.

Ms Eksteen replied that the Persal question should be raised with Department of Public Service and Administration. When this Department had compiled the personnel management watch, they looked into the key challenges, and, based on that data, they found it difficult to determine where the lack of capacity was. In respect of the Department of Foreign Affairs, the Department had been advised to move funds into goods and services from compensation, in order to ensure that those areas were not left without funding in the near future.

In respect of the reallocation process, she explained that the intention was to boost social infrastructure in education, health and roads. While the intention remained intact it was the pace of the movement between the categories that remained skewed. When a province was unable to spend, they were required to engage with National Treasury, who would able to assist with expenditure.

Department of Transport (DOT) Presentation
Ms Mpumi Mpofu, Director General, Department of Transport, outlined the expenditure per programme, expenditure on compensation of employees, transfer payments and budget challenges. The presentation also touched on the Public Transport Infrastructure and Systems (PTIS) grant projects, the South African Rail Commuter Corporation (SARCC) and South African National Roads Agency (SANRAL). She noted that during the financial year expenditure patterns were irregular, because expenditure was incurred and contractors were paid as each milestone was achieved in policy development projects.

During the financial year, invoices for the development and maintenance of the e-Natis system were paid in June, December and February. However the national portion of R52, 7 million was only journalised to expenditure in March 2008, after an arrangement with National Treasury to hold the provincial portions in suspense accounts and later claim the portions back from the National Revenue Fund.

The Department had 352 posts inactive and a vacancy rate of 35.48%. Some of the challenges included the need to implement the public transport strategy with much less funding than it really required. There was a high growth in the number of passengers requiring bus subsidies but there were no additional allocations received on the budget. The Department also needed to transform the subsidy system without additional funds. On the taxi recapitalisation the scrapping of taxis gained momentum beyond budget allocations, forcing a deliberate slowing down of the recapitalisation process.

Ms Fubbs asked for clarity on the delay of the expenditure and non establishment of the ports regulator. Clarity should be provided as to the focus of the proposed June Lekgotla. The Department was also asked to comment on the mechanics behind late invoicing and the payment schedules. Clarity should be provided on whether suspense accounts were used, and what the bicycles were to be used for.

Ms Mpofu replied that the challenge with the port regulator lay in moving forward to establishing staff and implementing the programmes. There had been a new CEO appointed. Delays occurred in the process of establishing a new entity, meaning also a delay in expenditure. The Department would not hand over funds until a clear strategic plan was in place.

Ms Mpofu explained that the Lekgotla was hoping to take a decision on the institutionalisation of the October transport month.

Mr Dan Pretorius, Chief Financial Officer, Department of Transport said that the Department treated the late invoices as accruals in the financial statements. Had the Department received the invoices on time, they would have been paid, and the under expenditure would have been reduced. He reported that in respect of the bidding process the main challenge lay in sourcing the appropriate skills, and a lot of the bids were not up to standard. In respect of the payment schedules, he said that the main issue related to the Gautrain, in which the Department paid out funds only once certain milestones had been received. There was a complex process involved with the funding of the e-Natis process. Since the Department could not make a determination easily as to which portion of payment belonged to the provinces and which portion belonged to the National department the amount was held in suspense accounts pending the final determination.

There were also events where the Department was compelled to oversee owing to its international obligations. He explained that the bicycles related to a programme implemented through the schools where those students who lived far away were issued with bicycles, and the Department had set itself a target of one million bicycles in 2010. The project faced a major challenge because of South Africa’s capacity to manufacture bicycles. The programme was not part of the scholar transport programme. There were many complications with the scholar transport programmes, and the Department was engaging in discussions with the Department of Education in order to determine who had the absolute right to run the programme.

Mr Schneeman asked for clarity on the vacancy rates and how these impacted on the Department’s plans and ability to spend. He asked what measures had been taken to find adequate skills to fill the vacancies. The Department was also asked to specify what the critical areas were that did not receive any funding.

Ms Mpofu replied that the vacancies were a major challenge. One of the areas the Department needed to address in terms of vacancies was road regulation. The Department lost critical skills and had to place important programmes on hold until the posts had been filled. Rail economic regulation was another area where the Department struggled to get the appropriate skills. She said that the Department was trying to implement the Joint Initiative on Priority Skills Acquisition, and the Department did offer bursaries to various universities. The areas that were critical for operations were seen as frontline areas, such as public transport. This was important because commuters did not respond very well to poor management of the frontline areas.

Ms Mashigo asked for clarity on SANRAL, and whether there were any monitoring mechanisms in place in order to ensure that the money given to SANRAL was spent efficiently. The Department should also comment on school transportation and whether money was received from the Department of Education.

Mr Mathabatha Mogonyama, Acting Deputy Director General, Department of Transport, replied that that every year a memorandum of understanding was signed with SANRAL, and the Minister approved SANRAL’s strategic plan every year. SANRAL had maintained roads that had been transferred to them from the provinces very well.

The Chairperson asked what happened to provinces who were given money to upgrade the road infrastructure, yet still had roads in a terrible state.

Mr Mogonyama replied that the Department did not have a direct influence on provincial planning. The Department focused on implementing mechanisms, trying to ensure that every province effectively spent funds, and technical support would be provided to the provinces.

The Chairperson asked where the money for transfers to provinces came from

Ms Mpofu replied that the roads budget worked on the basis of a split, and there was an intergovernmental fiscal transfer made via National Treasury to provinces. These funds would be re-prioritised by the Provincial Treasury, and the Department had no control over the amounts or the expenditure patterns. The Department only had control over the Expanded Public Works Programme’s projects. The bulk of the amounts were under orders from National Treasury.

Mr Fakir replied that in terms of the Constitution roads was a concurrent function, where national and provincial governments both had authority over the function. There were, however, different mechanisms of funding and there was regular interaction between national and provincial department of roads, where the DG had the opportunity to raise issues.

The Chairperson asked for clarity on who should be called to account for the poor quality of certain provincial roads.

Mr Fakir replied that the HOD of the Province was responsible for the provincial road.

Mr Swart asked for comment on what would be the socio-economic impact of the under expenditure on the 2010 World Cup.

Ms Mpofu replied that there were various divisions within the Department who were given work to do on 2010. However it was decided to deal with the project during the 2010 cycle, so that there would be a greater impact assessment.

The Chairperson asked for clarity on who was responsible for SAA’s policies. The Committee was continually disadvantaged by the airline, despite the numerous allocations to it.

Ms Mpofu replied that the Department of Transport was responsible for aviation policies and where airlines flew. The Department of Public Enterprises was responsible for the management of SAA.

The Chairperson asked how the Department assisted the municipalities in the efficient spending of funds. The provincial roads were in a terrible state. She asked how the national department had assisted the provinces in the maintenance of roads.

Mr Mogonyama replied that the Department used professional companies to do the monitoring of municipalities, and the reports that had been received had been of good quality. The Department also sent teams in order to provide technical support to municipalities.

Mr Gumede noted that the issue that the DG could not have oversight over the MEC was a political problem that had to be attended to by politicians.

The Chairperson indicated that by the end of the financial year the Department had spent 19.3% of their budget on consulting, and asked for further details on this. She also noted that the Department had spent R40.1 million on public transport, and clarity should be provided on why there was a huge under spending.

The Chairperson asked for detailed information in writing on those areas where the Department had decided to cut down on its expenditure.

Ms Mpofu replied that public transport was the area where the Department always ran out of money. The area of under expenditure related to the goods and services.

The Chairperson asked for information in writing on the impact of the torching of trains on Departmental expenditure.

The Chairperson finally said that it remained unclear why, when people were injured in a motor accident, they were sent to a private hospital for them to access the Road Accident Fund.

Mr Pretorius said that the Department could not force people to go to a specific hospital. The Department did plan on changing the system of compensating the victims of road accident, and setting caps on certain claims.

Mr Gumede asked whether the private hospitals would accept patients if limits were set

Mr Pretorius replied that the intention of the cap was to deal with those cases where foreigners lodged massive claims, especially for loss of earnings, from the Road Accident Fund.

Ms Fubbs said that part of the problem was the delay in payments to victims. It was not understandable why some of the cases to took two years to pay out. The Department should also comment on whether an independent inspectorate had been established for monitoring the expenditure. The Department should state whether parliament could add increased pressure on the provinces that under performed. National Treasury should comment on whether there was any measurable impact of the work that the Department was doing.

Ms Mpofu replied that in respect of the Road Accident Fund, a new CEO had been appointed, who attempted to clear the backlog and deal with complex cases. The report received from the Road Accident Fund showed that there was an increased turnaround time for the cases, and a reduced caseload. The Department was looking into all the issues, in conjunction with the Fund.  In respect of Gautrain the Department had a team that looked into what the Gautrain submitted to the Department. There was also an independent assessor who was performing independent checks. Three or four monitoring teams were checking on the implementation team. The sanctions for under expenditure would depend on the nature of the instrument that was used for transfer, and the extent of the penalty for under expenditure. She agreed that there should be strong penalties for under expenditure.

Mr Pretorius added that both SANRAL and the SARCC had to compile a schedule of projects to be delivered to the Department and National Treasury.

The meeting was adjourned.

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