Expenditure for first quarter 2008:

Meeting report

Department of Public Works (DPW): Expenditure report for first quarter 2008
Mr Thapelo Motsoeneng, Acting Chief Financial Officer, DPW, briefed the Committee on the first quarter expenditure for 2008. He outlined the budget allocation for the DPW for the 2008/2009 financial year. He noted that of the R4.1 billion allocated to the DPW, R1.5 billion had been allocated for Current Payments, R1.5 billion for transfers and subsidies and R1.04 billion for Capital Assets.

Review of Total Expenditure
A graph (see document) illustrated that the spending for the first quarter was 17 % of the actual budget. The DPW had set a baseline target of 25% for each quarter and so he stated that the 17 % was in line with the 25 % expenditure guideline.

Review of Current Expenditure
Mr Motsoeneng explained that the current expenditure allocations included provision for compensation of employees, goods and services. The current payments expenditure for the 2007/2008 first quarter was 22%. This was in line with the expenditure guidelines.

Review of Transfer and Subsidies
Transfers and subsidies included all “unrequited” payments that had been made by the DPW. Mr Motsoeneng explained that a payment was considered to be unrequited if the DPW did not receive back anything directly, by way of financial payments or otherwise, from the recipient party. The DPW had paid R139 million in the form of transfers and subsidies, whilst the bulk of the spending was made to the Augmentation of Property Management Trading Entity. The transfer payments for the 2008/2009 first quarter were penned at 35%.

Review of Capital Expenditure (CAPEX)
The Capital Expenditure consisted of five main categories of buildings and other fixed assets, machinery and equipment, cultivated assets, software and other intangible assets and sub-soil assets. The expenditure on equipment valued at less than R5 000 was not included under capital expenditure, but classified as goods and services.

The Capital Expenditure for 2008/2009 first quarter was R120 million, which amounted to 11% of the total allocation. The expenditure on infrastructure for the 2008/2009 first quarter was R111 million, and the balance was utilised to fund Machinery and Equipment. The total expenditure on Infrastructure for 2008/2009 for the first quarter was 5% of the budget.

Discussion
Ms J Fubbs (ANC) asked how far the actual expenditure was aligned to the DPW Strategic Plan and whether adequate funding had been allocated to the revamped National Youth Service (NYS) and the Expanded Public Works Programme (EPWP), since the EPWP was a one of the major instruments to combat poverty and unemployment.

Mr Motsoeneng replied that at the end of each financial year the DPW confirmed balances with line function government departments. He added that the Strategic Plan pertained to pertinent policy directives that the DPW wished to achieve, and that spending or funding on any programme within the line function of the DPW was considered to be in line with the Strategic Plan.

Mr Motsoeneng said, in relation to the EPWP, that the Annual Report would be released at the end of August and that it would reflect a virement to deal with added expenditure on the EPWP.

Ms R Mashigo (ANC) said that the EPWP was a very important government programme and asked that the delay in transfers for the EPWP was sorted out.

Mr Motsoeneng noted that the DPW did not work directly with the EPWP, as moneys were transferred to provinces to implement and drive the EPWP, with the DPW providing co-ordination and technical support to these provinces. He added that transfer payments did not affect the EPWP on the ground.

Ms Mashigo asked what the 9% under Transfer Payments was spent on and why there had been a lack of monitoring of these transfers and subsidies.

Mr Motsoeneng replied that the transfers had been paid to public entities that reported directly to the Minister of Public Works, such as the Independent Development Trust (IDT) and the CEB. The allocation percentage would change in the 2nd quarter, as more moneys would be transferred to the various DPW entities.

Ms Fubbs noted that it seemed that the DPW had redefined and reprioritised certain programmes that had not been included in the initial Strategic Plan, and asked to be briefed on what was now included.

Mr Motsoeneng noted that this was not the case, and that he was not in a position to comment on what should enjoy priority as that was a policy decision. All spending occurred in terms of the Strategic Plan.

Ms Mashigo asked why the previous year’s first quarter spending was 35%.

Mr Motsoeneng noted that during that previous financial year the DPW had made several outstanding transfers to municipalities and provinces to pay for service fees, and that this did not have an effect or impact on delivery.

In relation to the capital expenditure (CAPEX), he added that during the 2007/2008 first quarter the DPW spent 5% of its CAPEX budget, and this must be compared to the spending in the 2008/9 first quarter of 11%. This meant that it had allocated R111 million of a budget of R1.48 billion for capital assets.

Mr Motsoeneng said that the time had come to look at a possible revision of the procurement process without compromising controls, so as to ensure an effective process.

Ms Fubbs asked why there had been a spike in spending during the February period.

Mr Motsoeneng noted that during the second week of December until the second week in January the construction industry closed down for the festive season. This led to construction companies only filing their invoices for work done during February, which led to the spike in expenditure during this period as Progress Certificates were then issued.

Ms Fubbs noted that the whole country did not come to a virtual standstill due to a Christian holiday period and that the DPW should provide adequate responses.

Mr Motsoeneng replied that there had been no other reason for the spike in expenditure during the month of February, other then the construction companies submitting their Progress Certificates.

Mr G Schneemann (ANC) asked what had led to the sudden expenditure in the first quarter and how that compared to the previous quarter in terms of capital expenditure.

Mr Motsoeneng replied that the DPW did not spend its full CAPEX budget for 2007/2008, and that the department had solved some of the issues that were responsible for the blockages. He added that the spike in February was not necessarily a bad thing.

Mr Schneemann asked whether the DPW was saying that  construction companies were happy to wait for their money.

Mr Motsoeneng replied that during the first two weeks in December contractors were still conducting work. Progress Certificates could only be issued in February, once the DPW had assessed all of the processes involved.

Ms Fubbs noted that the Auditor-General had highlighted serious deficiencies with the DPW Asset Register, as the Department could not account for certain equipment. She asked how the 2008/2009 budget was going to address this problem.

Mr Motsoeneng noted that these issues were being addressed by the DPW.

Ms Fubbs noted that many small businesses complained that the DPW was taking long to issue Progress Certificates and that this constituted a serious problem as no business would want to wait for monies owed to it. She added that during the December period it was very difficult to get hold of the DPW, and that the idea was created that the DPW had serious problems.

Ms Mashigo added that at times work undertaken by the DPW tended to be of an inferior quality. She asked whether there were any measures in place to ensure that the work done and delivered was of high quality.

Mr Schneemann supported this claim and noted that the work that had been undertaken at the Parliamentary Village at Acacia Park was of an inferior quality.

Mr Motsoeneng replied that the DPW had been required to share their evaluation methodology with the Auditor-General (AG) by 2007/2008, and that the requirements by the AG had been met.

In relation to the claims of inferior work conducted by the DPW, he added that the DPW did have a Business Delivery Model in place that dealt with assessments of work that had been completed. The DPW usually appointed a consultant to work with the Project Manager in assessing the quality of the work done. Once these two individuals had conducted their assessments, they decided on whether Progress Certificates could be issued.

Ms Fubbs noted that several government departments had indicated that the DPW invoicing system had not been effective as it forced these departments to record rollovers.

Mr Motsoeneng noted that the National Treasury had asked the same question. The DPW took its instructions from its clients and at times these clients made changes to plans, which led to more interruptions. The DPW had since entered into a Memorandum of Understanding with departments on this issue and a Level Agreement was reached as to how the DPW would deliver on the mandate given to it.

The Chairperson said that state resources and the national budget were entrusted to the executive and accounting authority within a department, and that he had hoped to see either a Minister or a Director-General as head of a delegation to the Committee. He noted that departments who did not follow these instructions would be sent back and not allowed to address the Committee. He asked that the DPW send all relevant information in writing as requested and agreed upon.

Department of Communications (DOC) First quarter 2008 expenditure report
A delegation from the Department of Communications (DoC), led by Ms Gerda Grabe, Deputy Director-General:  Governance and Administration, DoC, briefed the Committee on the DoC expenditure for the first quarter of 2008/2009.

She said that the DoC expenditure for the 2008/2009 first quarter expenditure was divided into three economic classification namely, current payments, transfers and subsidies and payments for capital assets. Of the R 363.8 million allocated for current payments, R77.4 million had been spent. R94.4 million had been spent of the R1.3 billion allocated for transfers and subsidies, whilst R3.2 million had been spent of R8.1 million allocated for payments for capital assets.

She added that this breakdown represented 10,2 % of the total budget of R1.7 billion allocated to the DoC.

The DoC currently had various programmes that compromised the actual line function of the Department. These programmes were Administration, ICT International Affairs and Trade, ICT Policy Development, ICT Enterprise Development, ICT Infrastructure and the presidential National Commission. The actual expenditure for each was set out in full in the attached document.

Transfers and Subsidies to State-Owned-Enterprises were also set out in full in the document , noting that the appropriation in total was R1.3 billion but the transfers, as at 30 June 2008 were R93.4 million.

It was noted that the under spending that had occurred was mainly under the transfer and subsidies category and that the DoC had implemented stricter control measures to ensure that funds transferred to entities under the DoC portfolio, were utilised for their intended purposes. These measures included implementation plans and progress reports on how previous transfers were utilised.

Ms Grabe then briefed the Committee on the Performance Indicators of the DoC.

She started off by informing the Committee that the network design for the 500 Dinaledi schools was under way and that the Environmental Impact Assessment (EIA) process was implemented in May 2008. In relation to the number of reports on corporate governance of public entities, she noted that 20% of the work had been completed and that the entire process was expected to be completed by the end of the second quarter.

The DoC was in the process of finalising the Telkom and Sentech contract, and Telkom had already commenced with the Access Network for ICT infrastructure coverage for the 2010 FIFA World Cup.

The National Information Society and Development (ISAD) Plan had been approved by Cabinet in 2007 and was currently being implemented so as to align it with the World Summit on Information Society targets. She also indicated that more detailed information on the progress of the submarine cable and the number of post offices rolled out to promote universal service and access objectives was in her document.

Discussion
The Chairperson asked whether everything was on track for 2010 to ensure there was no gridlock.

Mr Zaaid du Toit, Chief Director: 2010, DoC, replied that preparations for 2010 were on track and that the DoC was busy signing off the contract with the Local Organising Committee (LOC). This would provide the framework for further plans. In terms of planning, South Africa was ahead of where Germany was at a comparable stage leading up to the 2006 World Cup.

He added that High Definition Television (HDTV) was not necessarily a requirement for 2010, but that it was a very important technological breakthrough for the country. The DoC was due to issue the licenses for the HDTV rollout.

Mr Mashilo Boloka, Director : ICT Policy, DoC added that in 2007 directives were issued to Independent Communications Authority of South Africa (ICASA). These directives had just been completed by them and HDTV would commence as soon as possible.

Mr Schneemann referred to a newspaper article that said that the submarine cable project had experienced some delays. He asked whether the DoC funded this project out of its own budget.

Ms Grabe replied that the DoC did not fund the submarine cable project as the DoC only played a facilitating role. This was a New Economic Partnership for Africa’s Development (NEPAD) project, with the DoC being a signatory to the protocol that provided the framework. South Africa was a member of the Inter-governmental Assembly.

She added that the DoC had received no indication that there was a delay, as NEPAD had indicated that the process was on track. The DoC Public Relations Office would be asked to look into this matter.

Ms Mashigo noted that Sentech had a very important role to play and wanted to know why Sentech did not spend its budget as it had to provide the set-top boxes for the switch from analogue to digital transmission.

She added that Sentech indicated that they would provide coverage to about 50% of the entire population, but as yet no transmitters had been installed.

Ms Grabe replied that Sentech was not responsible for the production and distribution of these set-top boxes. The set-top boxes had to be provided by the relevant manufacturers, and government had urged them to form a consortium so that the industry could develop and become competitive internationally.

Mr Makopi said that Sentech indicated that their target had been 50% coverage, but that this target would not be met as the funding that had been allocated to Sentech was considered to be insufficient. The 50% target was based on a business plan that was submitted to the Treasury as well as an assumption that it would receive R260 million. However, only R150 million had been allocated to them for this purpose. That had resulted in Sentech not being able to provide coverage to 50% of the population.

He explained that Sentech was subsequently told to revise its business plan; hence the omission of the funding to Sentech. Money had been transferred to Sentech in July that was in line with their revised Business Plan. The R200 million that was indicated related to the 2010 grant that Sentech received after they had to submit a detailed implementation plan as well as sign a Service Level Agreement with the DoC. A further R126 million would be transferred by the end of August 2008.

Mr Schneemann said that a report by the Auditor General (AG), dated 31 March 2008, indicated that the DoC could not account for all its assets. He asked what was being done to sort this out.

Ms S Malako, Chief Director: DoC, replied that two issues had been raised that pertained to the missing records of assets. She noted that due to auctions it took some time for assets to be recorded properly and that some discrepancies did occur as the Auditor from the AG’s Office was not informed of the various internal processes followed by the DoC.

The Chairperson felt that the explanation provided made no sense, as it seemed that the DoC was trying to hide the problems related to asset management.

Ms Malako stated that DoC enjoyed a very good relationship with the AG and that the DoC had always cooperated with the AG’s Office.

Ms Fubbs said that the AG had commented on the serious lack of capacity within the DoC and noted that it had a very high vacancy rate of 35%. She added that there had also been a lack of monitoring of annual leave as well as sick leave. She asked whether the Human Resource Chief Directorate was aware of how many people the DoC employed.

Ms Basani Baloyi, Chief Director: Human Resource Management, DoC, replied that the DoC had implemented a new model , the Organisational Structure, that had to address to the issue of capacity and capacity building within DoC. Funds that had been approved in March were utilised to fill critical vacancies. She added that the only two constraints the DoC experienced were with the Spectrum Management and Internal Audit. Consultants currently filled these positions.

Ms Baloyi confirmed that the Auditor General was not aware of the processes the DoC had put in place and that the DoC had been able to manage leave, via a manual system, as all DoC offices had a Sick Leave Book.

Ms Fubbs stated that she was surprised that the AG’s office could make so many mistakes. The AG had been explicit in his report that there was a lack of monitoring capacity. She said that the Parliamentary Research Unit had indicated that the DoC had severe staff shortages. She asked whether this meant that the official documents presented to Members were wrong. She thought that a reconciliation report was needed from the DoC to give clarity on this matter as things did not add up.

Mr Schneemann said that in the official documents before Parliament the DoC had 523 vacant posts.

Ms Baloyi replied that the vacancy rate was lower, as most of the posts had already been filled. The DoC currently had a staff shortage of 111.

Mr Schneemann asked which DoC Programme covered Transfers and Subsidies, and what monitoring mechanisms were in place to monitor these funds.

Ms Grabe noted that ICT Enterprise Development was the programme that covered Transfers and Subsidies.

Ms Fubbs asked how many posts the ICT Enterprise Development programme consisted of.

Ms Baloyi replied that it currently had 6 posts and that it would soon be 7, as one Deputy Director still had to be appointed.

The Chairperson asked that the DoC indicate in writing what their personnel strength for the past two years had been.

Mr Schneemann asked that the DoC also respond in writing to his question that pertained to oversight and monitoring of Transfers and Subsidies.

Ms Mashigo asked for an explanation on what was meant by “transfers within the DoC”.

Mr Boloka replied that the DoC ran support programmes for community radio stations and that the money that had been put aside for this purpose would be classified as “transfers within the DoC”.

Ms Fubbs asked what the DoC policy on performance bonuses was. as this was one of the other issues that the AG had highlighted in his report.

Ms Baloyi replied that all performance bonuses were signed off by the Minister and the Director –General, and that she had signed the Letters of Performance Award Assessments, as she was the HR Chief Director. She added that she was on holiday when the audit was done and thus valuable information could not be provided to the AG’s office.

Ms Fubbs said it was highly irregular for the AG to make such mistakes and that it seemed the DoC was skirting the issue.

Mr Schneemann said that the allegations were very serious and that the Chairperson had to involve SCOPA in sorting out the problem

The meeting was adjourned.