National Treasury briefing on department 4th quarter spending

Budget Committee on Appropriation

01 August 2008
Chairperson: Ms L Mabe ANC & Mr B J Mkhaliphi ANC
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Meeting Summary

National Treasury gave a response to the previous Committee Report and its recommendations. It then
provided an in-depth overview of Fourth Quarter National Expenditure by the over 100 departments.

Meeting report

The Chair emphasised that the task of the Committee was oversight work and that he intended to strictly adhere to the allotted time frames.

Introduction by National Treasury
Mr Robert Clifton, Adviser to National Treasury, emphasised that he was presenting a quarterly report and that the format of it was flexible, designed so that those having access to the report could manipulate and extrapolate the figures in order to draw their own conclusions and interpretations from the report as produced by National Treasury, but without introducing changed figures and entries.

He asked the Committee to be cautious in their interpretation of departmental over and under spending as there might be good reasons for this at this juncture which did not permit one to conclude that there was anything amiss in the Departments. He continued that this was a work in progress and that the end result after a full year would provide a complete picture. However, at the same time the over or under spending would indicate possible areas of concern. He cautioned that the prima facie examination might give rise after deeper work to a perfectly innocuous explanation but what was revealed could also just as well indicate potential problems. The reports covered fifteen departments. There might be other departments not revealing such warning red lights but when examined such departments could open a can of worms so that a big problem might be revealed.

Response to Committee Report and its recommendations
Mr Clifton handed over to Ms Raquel Ferreira, Director: National Budgets, who proceeded to highlight responses to the Committee’s last set of recommendations. In summary, these were:
-  The panel might need to be increased. National Treasury had welcomed such recommendation.  
-  Government measures to alleviate inflation and between 2007/2008 and 2008/2009 there was a need to make adjustments;
- The establishment of systems to determine departmental savings were not the area of National Treasury;
- PMFA adjustments were operative and the intention was to restrict these to 10% for any financial year;
- Resources proposed for provincial and local government must be complemented by improved co-operative governance and intergovernmental co-ordination which required effective monitoring by all concerned;
- Provincial governments should co-fund priorities such as hospitalisation regeneration schemes as a pilot programme;
- State-owned Entities should be expanded and encouraged to put them into wider programmes;
- To create an environment for SA to become an important industrial power and in this regard tax incentives had to be discussed with DTI for an effective industrial policy framework;
- Departments should spend in line with national priorities and eschew ad hoc environments;
- National departments should report to Parliament on spending including transfers to entities and sub national governments covering financial information and the ENE provides the basis for reporting performance information.
- That realistic KPI should be included and in this regard ENE raises the bar on performance indicators;
- That there should be compliance with supply chain policies and the development of appropriate expertise. In this regard National Treasury issued practice notes and guidelines on supply chain management and procurement and also provided training on these;
- That departments should improve budgeting for capital projects, which was the subject of discussions within the capital budget committee within National Treasury;
- Spending on transfers to provinces should be covered in national departments reports and it should be borne in mind that Section 32 reports in terms of the PMFA covered this requirement in detail;
- The DPSA should set specific time frames to fill vacant posts, and this should be monitored more actively and stringently by National Treasury. It was submitted that the National Treasury report on first quarter spending took account of this recommendation
- That transfers to provinces and municipalities should be consolidated at national level. In this regard section 32 reports in terms of the PMFA and section 71 reports in terms of the MFMA had been published
- That an in-year reporting system for mega projects be installed with adequate monitoring of the infrastructure – the chart of accounts had been changed to provide for specific reporting.

Ms J Fubbs (ANC) said that she felt the Committee could have more specifics provided in the response. She illustrated her contention by referring to page 6 where there was reference to co-funding. She wanted to know specifically what hospital revitalisation might be. On page 7 with the reference to SOEs encouraging training, she felt that the setting of targets would be helpful.

Mr M Swart (DA), referring to page 6, questioned the differential between national and local expenditure and specifically what was the spending pattern and how this spending pattern could be improved upon.

Ms L Mabe (ANC) said that she was aware that the compulsion to speak was an executive prerogative but wanted to know how the question of integrated development impacted upon budgeting. She referred to page 11 and asked if this was a recommendation or a development.

Ms R Mashigo ANC referred to the recommendation that SOEs should employ more people. She wanted to know what the figures were, if available, of those employed under this provision. Additionally she wanted to know whether there were guidelines for actual programmes and at what level such employees were taken on.

The Chair interposed that National Treasury was not expected to micro manage but that in his view Parliament under the Extended Public Works Programme (EPWP) was expected to do so, and he wished to know what skills were being transferred.

Dr D Gumede (ANC) wanted to know whether it was not possible to obtain from state departments their key performance areas in a type of dashboard and then instead of micro managing, the Committee could over view the position from a review of the dashboard.

The Chair, referring to page 4 and the measures to alleviate inflation, asked how the amounts of the Social Grants and State Salaries were being adjusted in line with the inflation figures and whether there was an intention to stick to that.

Mr Clifton then advised the Committee that his colleague would provide the replies.

Mr Andrew Donaldson, Deputy Director General: Public Finance, stated that with regard to the question of specificity he, on behalf of National Treasury was very pleased to engage.

Mr Swart interposed and asked exactly what that meant.

Mr Donaldson pointed out that if a department was 5.1% over or under budget in the first quarter it did not necessarily mean that over the whole of the long-term period, a department would be over or under budget. The temptation to single into a figure or set of figures was to be resisted. A long-term evaluation of the figures was necessary whilst still noting any spikes or dips, which could portend real problems. He added that National Treasury could not simply transfer figures entered into one category because it was unseemly.

Mr Clifton said that National Treasury was focusing on municipal expenditure or budgets and as it was focusing thereon, National Treasury was happy to take this forward. National Treasury wished to work more closely with the Municipal Governments.

To the Co Chair, Mr Clifton explained that 10x10 was not a new vehicle to aspire to, but nomenclature to cover the 10 departments of state with their provincial equivalents and was another attempt to ensure that National Treasury and departments of state at either national or provincial or local level interfaced successfully.

Addressing the Co Chair’s question relating to page 11, he advised that National Treasury was constantly evaluating the number and level of vacancies and identifying critical posts and those posts which had become redundant. He gave as a few examples of critical posts such as investigating offices (detectives) in the Police services, nurses in the Medical services and psychologists in the Department of Correctional Services - all of which were viewed as being in critical short supply. Addressing the question of transfers to Provincial and Municipal departments, he added that sections 32 and 71 of the relevant Acts were proving beneficial and he felt the Committee might be assisted if even more detail was provided. He added that National Treasury endeavored to track municipal spending at the local level as much as possible.

Turning to the question from Dr Gumede, he stated that what was important and observed were the key performance indicators and these were examined against a seven-year cycle, the present year against the three previous years and the projections for the next three years. At all times, the endeavor was to extrapolate a reasonable deduction. ENE was a good test for marking the aspirations and ideals. He agreed that it was not perfect but suggested that it be viewed as a work in progress with a constant need to raise the bar. And to do so, the data required had to be constantly evaluated.

Ms Ferreira stated that there was a conscious view of the need to effect savings and so amended guidelines for drafting budgets were issued constantly. These were adjusted for the effect of inflation and social grants and state salaries were viewed and reviewed.

The Chair stated that higher food prices were a very real concern to the Committee as such was a major issue for the man in the street.

Mr Donaldson said that the question of inflation gave rise to policy issues and decisions and National Treasury was not in a position to deal with policy. The National Treasury report only deals with the numbers. However training was built into the Extended Public Works Programme which had specific requirements over a wide range of programmes some of which were labour based road works and others community work in the social sector.

This requirement means interfacing with and consultation of NGO s, which was time consuming. There were professional traing programmes; for example certain categories of teachers in the service of the Education departments and the Municipalities were endeavouring to implement labour intensive programmes with on the job traing and in respect of training of temporary workers.

Further he posed the question whether such training programmes were giving emphasis to relieving general poverty or only endeavouring to upgrade certain categories and asked whether this covered or included engineering skills under the EPWP for career progression.

Turning to the question of inflation he stated that the minister of Finance had stated that there were two dimensions to inflation. Firstly with regard to fuel price inflation was must be appreciated and recognised that there was an ever increasing shortness of fossil fuel and the world and South Africans just has to reconcile itself with the fact that there was going to be an verver increasing cost of or more expensive fossil fuel. The recent announcement by the Minister of Environmental Affairs and Tourism that the carbon footprint required to be reduced and if necessary a carbon footprint tax would be required to encourage the movement to a reduced footprint by 2050 and accordingly the cost of fuel must be increased was important. The question of increasing food prices was a different question and South Africa must take steps to counter this problem and return to the situation of being a net exporter of food rather than as at present an importer of food. Steps to support farming and farmers were necessary but unlike other countries, which subsidise farmers and farming activity, SA needs to proceed carefully. Any measures in this regard must be within the parameters of the war on poverty and there was required a concentration on assisting the emerging farmers with knowledge and capital and in other ways and the households in real need. In this regard he cautioned that there was a very real need not to confuse the needs in the short term with the need, which were more important, of the long term.

In response to the Chair M/s D Robinson and Dr Gumede who all asked similar questions he advanced the opinion that Government needed to co0oerinate it approach in an integrated approach, and that such was not the required task or function of National Treasury.

National Treasury Overview of Fourth Quarter National Expenditure
At this stage Mr Clifton began an overview of 4th quarter spending submitted by way of the Excel printout.

Page 1 was a synopsis of the over 100 departments, page 2 a classification thereof, page 3 a survey showing the spending per accounts while page 4 was per budgets. He highlighted Trade and Industry and Home Affairs and pointed out that page 16 revealed the departmental spending trends, page 17 dealt with the issues arising from departmental spending patterns and page 18, especially the diamond asterisks, revealed the pleasing aspects thereof. Page 19 revealed the current spending and page 20 the year-on-year review thereof while page 21 revealed the breakdown of capital spending. In this regard the Department of Foreign Affairs was singular as it revealed little of capital spending and the 112 missions had yet to produce acceptable invoices. Page 23 was devoted to Public Works. Page 25 revealed that there was a variance of 12% for National Treasury itself but this was accounted for by the staff vacancies. Page 31 devoted to Social Development revealed deficiencies but such arise from the Lovelife campaign, which had also contributed irregularities for Sport and Recreation, but there were acceptable explanations for both these irregularities

Mr Clifton proceeded to page 35 on Department of Communications and the projection thereon arose from the non-payment to Sentech pending production of an acceptable performance service agreement. Page 36 Department of Environmental Affairs and Tourism had a similar spike arising from Tourism’s similar problems. Page 37 Department of Housing was broken down into Assessment and Planning and Delivery Support and there was a similar performance service agreement problem.

Page 40 revealed problems because there was no request for a compliance certificate.
Page 41 revealed the Department of Public Enterprises was under spending because of a lack of compliance with invoices for the Pebble Bed Modular Reactor. Page 44 Department of Transport also revealed a question mark and this related to three payments.

Ms Fubbs said that there had been the production of a lot of information, which gave rise to many questions and which required clarification. Addressing page 23, she asked whether there was any significance between June as printed and July as provided orally. With regard to late payments, she wanted to know why Transport had 50% and if this was associated with the Gautrain.

Mr Swart asked whether there could be an explanation summary of conditional grants. He noted that a conditional grant was listed for SAFEX and wanted to know why there was nothing similar for SAA.

Dr Gumede noted, with regard to inflation and high food prices, that South Africa was doing better than Europe and the USA but he wanted to know whether time frames for this or its comparison had been established. He also wondered whether there could not be assistance with the price of paraffin, which was impacting heavily upon paraffin users who were mainly the poor. Secondly he was aware that the EU subsidised farmers quite heavily but not Africa. Yet it was Africa which had so many hungry people and Africa needed hope, for it had already given rise to xenophobia. He felt that there should be a concerted effort to assist with the lowering of food prices, as without such there was potential for trouble. He suggested that all the government departments co-ordinate with one another on this. He felt additionally that if soccer stadia could be built so too could irrigation schemes, which would be of more benefit than soccer stadia. In the Far East not only were there more farmers and more land under cultivation but more tractors per square mile. India and Brazil had forbidden the export of meat and meat products to curtail inflation and he felt SA should be approaching the problem in similar ways.

Ms Robinson pointed out that South Africa required an improved public transport scheme, especially in the rural areas. All efforts at improving public transport were currently in the urban areas for the 2010 Soccer festival.

A committee member observed that the spreadsheets were difficult to interpret and were not user friendly and did not give reasons for the over or under spending which were highlighted. In the Departments of Safety and Security, no details were provided of any police stations being upgraded, if any. However, the Department was thanked for an improved presentation.

Mr Clifton said he acknowledged the reservations from the Committee and added that for many of the questions he would have to revert to the Departmental budget analysts for deep information. Addressing Ms Fubbs he acknowledged the typo and explained that with the Gautrain National money was used first and  Provincial money and that this accounted for the discrepancy. The Gautrain was monitored both quarterly and monthly. With regard to the question about Public Enterprises he was not sure and would revert after investigation and with talent management, he would also have to revert to sources to have the correct information at his disposal.

Mr Donaldson advised that the Gautrain was monitored s closely to maintain an early warning system about any possible problems emerging. With regard to water, the Director General of Water had closely monitored schemes in the past and  discovered that water was being directed to the established, rather than the emerging, farmers because of entrenched or registered water rights. SA was not a well watered land and the Department of Water was putting in lot of work to ensure that wherever it was possible irrigation schemes were instituted, and monitored, so that emerging farmers also benefited.

He conceded that with regard to Public Transport there was a current concentration on the urban areas. However, the developments for 2010 would be of lasting value and able to be expanded in order to meet demands. The recently introduced rapid bus transit (RBT) systems were proving effective, exciting and making a difference.

Ms Robinson again repeated her request that consideration be given to (expanded) public transport systems in the rural areas.

Other members associated themselves with her request and observations.

Ms Fubbs raised questions about the service level agreements and whose responsibility drawing these up might be. She referred to the preponderance of journal entries and suspense accounts and wondered what control there might be in this regard; the distinction between banking and current systems and why there was late acceptance of the rendering of invoices. She asked why there was no time frame for the production of these.

Ms Mashigo referred to the grants and wondered about on what criteria such were made.

Mr Clifton in reply said that with regard to many of the questions he was forced to revert to the Budget analysts.  On the matter of appropriations, this was done because it could not be foreseen what issues were going to emerge in operation. He would have to revert to the experts regarding the criteria.

Ms Fubbs raised questions about the Department of Foreign Affairs journals and suspense accounts and why such monies were not placed in the proper account categories.

Mr Donaldson responded that both Social Welfare and Sports had different criteria for their grants and they relied upon the integrity of the Departments. With regard to service level agreements, there were thousands in place and most were repeated over time without change but whenever a new project was embarked upon such required to be drawn up. It was left to the experts in or out of the departments concerned to draft the necessary agreement and this took time in order to be all inclusive. The Sentech agreement was a major new agreement and required careful drafting.

Ms Fubbs repeated her observations that the use of suspense accounts was puzzling and dangerous and she wondered whether consideration by National Treasury had been given to issuing guidelines in these regard.

Mr Clifton said guidelines issued by the Accountant General were adhered to. Referring to the Labour Department’s suspense account, he pointed out the smallness of such account and added that it was intended to cover Injuries suffered on Duty and so provision was made for such but the use of this fund depended on the actual number of injuries, which was not constant, but fortunately varied considerably. The other suspense accounts were similar

Mr Donaldson explained that with regard to the many missions operated by the Department of Foreign Affairs, there was little by way of capital expenditure and the missions were reliant on the production by service providers of invoices which meet with South African criteria. This process delayed payment leading to the entries in the accounts. DFA was instituting a new system. Labour, fortunately, did not have a regular series of Injury on Duty (IOD) cases but did have IOD cases and provision had to be made for such.

The Chair interposed and said that he felt that Parliament through this Committee should exercise oversight and required National Treasury to be raising the bar constantly.

Mr Swart referred to aspects of the Excel report and Mr Donaldson asked that this be viewed as a work in progress, which would, could and did change monthly.

Dr Gumede remarked that while Soccer 2010 was important, he felt that the ongoing problems associated with health, education, rural development and fighting crime required additional attention.

Ms Fubbs expressed the view that National Treasury could assist with the production of guidelines and a strategic plan. Thus the public, the media and the departments (national, provincial and local) could have a better understanding of the need for and importance of budgets and that thereby Parliament could be assisted in its oversight role with benefits to all parties concerned.

The meeting adjourned.


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