Provincial Health Departments: First quarter 2008 spending on Conditional Grants, Capital Expenditure, Personnel & Non-Personnel

NCOP Finance

02 September 2008
Chairperson: Mr T Ralane (ANC, Free State)
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Meeting Summary

The National Treasury gave a brief presentation on the performance of the Provincial Departments of Health for the first quarter of 2008, which showed that a combination of potentially large over-expenditure but under-spending on capital and conditional grants, could be problematic. By June of this year the provinces were projected to overspend by R4.6 billion. Every health department and every provincial treasury needed to look at a Human Resources (HR) plan, controls and interventions to address this over-expenditure. With regard to capital and conditional grants, under-spending was prevalent. By the first quarter, only 17% of capital spending was spent, with the result that there was a need for interventions by provincial departments of Health and Treasury should occur. The provincial Departments of Health for Limpopo, Northern Cape, Eastern Cape, Western Cape, North West, Gauteng, Free State and Mpumalanga were then asked to present. Reasons for over-spending were given as personnel expenses, the rising prices of goods and fuel, as well as a commitment to Occupation Specific Dispensation. Mismanagement, incompetence and a lack of capacity were also cited as reasons for funds being wasted. The Department of Public Works and contractor problems were also cited as being issues for concern. The Chairperson called for solutions and set up joint departmental meetings in certain provinces in order to assess what exactly was the reason for their poor performances. The allegations around the Department of Public Works would be further investigated.

Meeting report

Provincial Health Budgets and Expenditure: National Treasury (NT) briefing
Dr Mark Blecher, Director: Social Services, National Treasury, expressed concern about the emerging figures for the first quarter. A combination of potentially large over-expenditure but under-spending on capital and conditional grants was presented as one of the emerging problems. At the end of the financial year in 2004/5 and 2005/6, provinces were under-spending but at the end of 2006/7 and 2007/8 there was a significant change in this trend, and provinces were now overspending. By June of this year provinces were projected to overspend by R4.6 billion. Spending had increased by 2.5% from this projected total, compared with the total in the same month last year. Every health department and every provincial treasury needed to look at a Human Resources (HR) plan, controls and interventions to address this over-expenditure. With regard to capital and conditional grants, under-spending was prevalent. By the first quarter, only 17% of capital spending was spent. Interventions by provincial departments of Health and Treasury should occur.

Discussion
The Chairperson asked whether it could be expected that there would be some stability going into the second quarter.

Prof Craig Househam, Head of Department, Western Cape Provincial Department of Health, stated that Occupation Specific Dispensation (OSD) was implemented on 1 July 2007. These figures were not unexpected and national provinces were well aware of it. There was a concern by National Treasury that the OSD was not being correctly implemented. Departments of Health contested this view, and also had concerns with regard to funds available for OSD. Doctors, Pharmacist, dentists and emergency staff expected OSD to be implemented. Treasury had indicated that if the represented figures were accurate, implementation would be impossible as funds would not be available. This problem would extend and realise itself throughout the financial year.

Limpopo Province Department of Health briefing
A representative from Limpopo province stated that the OSDs had had a negative impact and money was not available even to increase the number of doctors. Not all tertiary services had been included in the expenditure with regard to the National Treasury Services Grant but the Department would correct this inaccuracy and a true picture should be shown in the next quarter. With the Hospital Revitalisation Grant and the Provincial Infrastructure Grant there was a delay with regard to the advertisement for contractors. As a result, advertisements only occurred in July and August for some projects due to be completed last year. Further delays had been occasioned by the Department of Public Works and there were challenges of poor workmanship and contractors abandoning sites. We have engaged with that Department and Provincial Treasury on these issues.

The Chairperson requested that members meet the Department of Health, and the provincial Departments of Public Works (DPW)and Provincial Treasury in Limpopo.

Mr D Botha (ANC, Limpopo) stated that there were other departments also querying the work done by DPW in Limpopo. A suggestion was made that DPW in Limpopo should be investigated as it seemed that they were not doing their work as required.

Mr L Sebeko (ANC, North West) agreed with the Chairperson but expressed a need for a long term plan for public works, because there were problems with infrastructure delivery all around the country. Whilst he agreed that a solution must be found, he stated that the Provincial Health Departments were not to be regarded as completely innocent.

Mr M Robertsen (ANC, Eastern Cape) stated that the Ministers and MECs should be brought in and these issues should be put to them.

The Chairperson expressed that there was a need for someone to do quality checks about infrastructure and noted that the Committee would be visiting Limpopo. There would be more than five departments meeting because of the range of problems with regard to infrastructure in that province. It was not only DPW, but other departments that should be looked at as well.

Mr Botha stated that DPW complained of shortage of capacity, but then they would merely advertise for contracts and not do the work themselves. He asked what the officials in DPW were actually doing to justify their salaries, as it clearly could not be the task of the HOD of Health to ensure that a building was completed. 

Northern Cape Department of Health briefing
Dr Thabo Sibeko, HOD, Northern Cape Provincial Department of Health, noted that the province had spent 84% of the conditional grants in 2006/7 and 2007/8. The problem was in the infrastructure grant to provinces and also in hospital revitalisation. He noted that there was a need to withdraw Upington and De Aar hospital work due to a lack of funding. There were delays in the finalisation of outstanding works and delays in the delivery of health technology equipment. He thanked the Western Cape for assisting them and providing equipment, as the Northern Cape did not have capacity. There were capacity constraints in the office of hospital revitalisation, which were solved by employing staff. There were 11 mortuaries that were being upgraded but only three had been completed due to a dispute with the contractor. This dispute was being addressed and should be resolved.

Discussion
The Chairperson noted that the Committee would be visiting three provinces on the following dates: October 3-5 in Limpopo, October 10-12 in Northern Cape and October 17-19 in Eastern Cape

Mr Robertsen stated that many of the projects in the Northern Cape had failed because contractors had not up to standard. He questioned whether or not the Northern Cape followed the right procurement processes for these contracts, and warned that some of these contractors could have been blacklisted but were used nonetheless. There was not obvious service delivery to the people on the ground. He asked if Northern Cape used penalty clauses in their contracts.

Mr E Sogoni (ANC, Gauteng) asked whether capacity was being increased in the Northern Cape Health Department. He also commented that if this was the case, it would be a step in the right direction.

Dr Sibeko replied that the contractor for mental health was a small contractor who was doing a huge job, due to his having being appointed before the ratings; if the appointment had taken place after the ratings he would not have been given the job. The Auditor General was unhappy with the Northern Cape Department of Public Works as they did not use penalty clauses. The province had employed staff and intended to monitor the Department of Public Works. If Public Works still continued to fail to do their job then the Department would do it themselves.

The Chairperson asked whether the Committee should meet with the contractor when they visited the Northern Cape. Ordinarily the contractor should have been taken off the site, but he might have been kept there because of empowerment and a good conscience. However, this contractor compromised service delivery.

Mr Sogoni expressed that the Northern Cape should be assisted, and agreed that there should be a meeting with the contractor.

Mr Robertsen also agreed with a meeting being held with the contractor as there were two sides to every story.

Ms D Robinson (DA, Western Cape) agreed that a meeting should be held with the contractor and stated that it would be better to understand what was happening there locally, before reaching a decision.

The Chairperson said it would be important to meet with the contractor and engage with the parties involved, for the purpose of assisting them and mapping a way forward. 

Eastern Cape Department of Health briefing
Mr Lawrence Boya, Superintendant General, Eastern Cape Department of Health, stated that South Africa did not have a national integrated health plan. A plan should be put into place to provide for quality health services for the next 20 to 30 years. The Service Transformation Plans (STPs) were an attempt to do this, but it was a bottom-up process where the provinces tried to put this plan together. He suggested that the National department should consolidate this, so that there could be a national health plan. The Eastern Cape had created a plan but more technical work might be needed to make it sound. The downgrading of certain facilities and the removal of services from certain communities were amongst some of the contentious issues discussed. There should not be the situation where certain hospitals duplicated services in the same town, and consideration must be given to how many tertiary hospitals were actually affordable. There were some views that hospitals should be “on the doorstep” but this could not be possible. People in certain areas would likely not come to hospital for a heart transplant, so the question was why heart transplant hospitals should be put in those areas.

The Chairperson expressed that this discussion was long overdue and encouraged members to bring up other problematic issues in terms of spending patterns. He said that there was a need to confront unintended consequences, such as the contractor that could not finish his work in the Northern Cape, as discussed earlier, and to try to resolve these issues.

Mr Robertsen stated that the Eastern Cape was a big province and East London and Port Elizabeth were 300km away from one another. People from the northern end of the province, far away from these cities, had to travel huge distances for heart treatment. The intentions for Mthatha Hospital were good, as it was more central to the rest of the province.

Western Cape Department of Health briefing
Prof Craig Househam, HOD, Western Cape Department of Health, noted that a planned roll over of R82 million in the Hospital Revitalisation Programme was expected, but that it would be used to facilitate a budget shortfall in 2009/10. With regard to the Forensic Pathology Services Grant, there had been appointment of  personnel. There had been challenges with the appointment of suitably qualified people and people in the service for the right reasons. With regard to infrastructure, the limited infrastructure funding was a problem in that some mortuaries and facilities were not fit for their purpose. It would cost about R230 million to bring these facilities up to standard. With regard to the HIV and AIDS grants, he reported that the current under-spending was due to a time-lag in transfer payments to Non-Government Organisations (NGOs) and claims from the City of Cape Town. Although these entities had been paid the book entries had not been properly moved from the Assets and Liability accounts, which still need to be cleared. The exponential growth of patients on antiretroviral (ARV) therapy would result in an over-spending by R40 million, driven almost exclusively by ARV’s and costs. The Department had approval for the construction of Khayelitsha and Mitchells Plain hospitals and hoped that the contractor will be on site early next year.

Discussion
The Chairperson commended the Western Cape and said there was no clarification needed.

North West Province Department of Health briefing 
A representative from the North West Provincial Department of Health stated that some comments were needed on the presentations made by National Treasury, especially with regard to over-expenditure on personnel. There had been representations on an unacceptable over-expenditure for the quarter. With regard to the comprehensive HIV/AIDS grant, only 13% of the budget was spent, due largely to late transfers from the National Treasury. The Department had come to an understanding with the Provincial Treasury to make cash flow available pending disbursement from the National Treasury. Expenditure would accordingly pick up during the second quarter.  

Discussion
Mr Botha requested whether there were official letters written asking for money by the provincial Department, or whether this was simply a verbal request.

Mr Robertsen requested whether money would really be freely available, as the presenter had stated that Provincial Treasury would make cash flow available pending disbursement; he pointed out that this did not seem to imply any guarantee.

The representative stated that there had been a verbal discussion and letters written.

The Chairperson expressed concern about the agreement with the Provincial Treasury. He noted that a meeting in the North West was scheduled on 24-26 October when the matter should be further discussed.

Gauteng Province Department of Health briefing
Mr Fani Meso, Acting CFO, Gauteng Provincial Department of Health stated that this Department had put measures in place to assess the top ten expenditures and see where to produce efficiencies in terms of procurement and other areas in which costs had been high. Expenditure incurred against the equitable share, amounting to R139 million, still needed to be journalised to the conditional grants. The under-expenditure was due to the introduction of the new Standard Chart of Accounts, which caused misallocations of about R9.3 million. With regard to the Forensic Pathology Services Grant, expenditure was R9.3 million. Under-expenditure was a result of salaries being paid from equitable shares as opposed to the grant. This had been rectified with spending up to 41% at the end of August 2008.

Mr Botha asked why the R139 million was still not journalised, and how this Department, in view of the incorrect statements, could actually account for what was actually going on.

Mr Meso stated that all the challenges had been sorted out and by the next quarter all accounts should be rectified.

Mr Botha asked when was this amount journalised, if not by the end of June.

Mr Meso stated that after being detected, it had been rectified and was shown as a non-equitable share at the end of June, rather than a Conditional Grant.

Free State Province Department of Health briefing
Dr Arrie Schoonwinkel, HOD, Free State Provincial Department of Health, stated that 29% was spent in the first quarter. HIV and AIDS had an expenditure of 19%. This and Forensic Pathology Services were the only two areas under 25%. Money was being saved in the area of Forensic Pathology Services for funding for the Bloemfontein Mortuary. The high expenditure with regard to the Provincial Infrastructure Grant was a result of projects that started last year, which was still being paid back. An over-expenditure could be expected as already R30 million had been spent.  Increases in prices for goods and services related to high health inflation and increases in fuel and maintenance prices also presented challenges. An increase in patients would also increase expenditure and results in more pressures in the area of maintenance.

Discussion
The Chairperson stated that the Free State Province had raised issues of rises in prices that could impact upon expenditure. Prices also had a negative impact on service delivery. An increase in patient numbers and an increase in crime could result in a greater need for security, which would also increase the expenditure.

Mpumalanga Province Department of Health briefing
Dr Sibongile Zungu, HOD Mpumalanga Provincial Department of Health, stated that Hospital Revitalisation Grants were budgeted at R32, 8 million and showed an under-expenditure of R15,7 million, representing 53% of cash received. Provincial Infrastructure Grants were budged at R20 million and shows an over-expenditure of about R3 million on cash received, due to previous financial year commitments that were paid in the current financial year. National Tertiary Grants were budgeted at R16,6 Million and showed an over expenditure of about R7 million on cash received. At the 31st of July 2008, the Conditional Grant bank balance amounted to R11, 7 million, due to the reasons mentioned.

Discussion
The Chairperson stated that Mpumalanga had been in difficulties for some time, but with a new MEC perhaps the province could find a way to turn this Department around. Sensitive issues remained unresolved. Passionate engagement and more thinking with regard to a health plan would assure that progress would be made.

The meeting was adjourned.

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