ATC100601: Report 3rd Quarter Conditional Grants Spending Patterns on Comprehensive HIV and AIDS, Hospital Revitalisation, and Forensic Pathology for the 2009/10 financial year

NCOP Appropriations

Report of the Select Committee on Appropriations on the third quarter conditional grants spending patterns on Comprehensive HIV and AIDS, Hospital Revitalisation, and Forensic Pathology for the 2009/10 financial year, dated 01 June 2010.

 

1. Introduction

 

1.1 Background

The Select Committee on Appropriations (the Committee) invited identified provincial departments of health, who were either under-spending or over-spending on the Comprehensive HIV and AIDS, Hospital Revitalisation, and Forensic Pathology Grants, to come and make a presentation on their third quarter spending for the 2009/10 financial year. The statistics on spending patterns were published by the National Treasury in March 2010. 

 

The Committee meeting took place on Tuesday, 4 May 2010. Meetings were held at Committee Room 3 in Parliament of the Republic of South Africa.   

 

1.2 Terms of reference 

The public hearings formed part of the Committee’s ongoing interaction with provinces to monitor their spending patterns on conditional grants allocated to them. A framework for each grant sets out, amongst other things, the purpose of the grant, measurable objectives, conditions, allocation criteria, and past performance.

 

Provincial departments of health were requested to make presentations on Comprehensive HIV and AIDS Grant, Hospital Revitalisation Grant, and Forensic Pathology Grant and to take into consideration the following:

• Data trends in allocations, transfers and actual expenditure of conditional grants of the department;
• Assessment of department’s monitoring capacity for the 2009/10 financial year  and indicate under-/over-spending and what capacity constraints had impacted on these outcomes;
• Report on whether monthly reports were received from receiving departments or municipalities, and if not, what the departments are doing in order to ensure compliance with monthly reporting; and
• Medium-term strategic plans.

 

The provincial departments of health of Free State, Mpumalanga, KwaZulu-Natal, Limpopo and Northern Cape were identified and invited. All invited provinces honoured the invitations.

 

The National Treasury was invited to brief the Committee on the third quarter spending of the above-mentioned provincial departments. 

 

2 Presentations

 

2.1 National Treasury

The National Treasury outlined an overview of provincial departments of health’s spending as at 31 December 2009. The National Treasury reported that the overall spending was R66.5 billion as at the end of the third quarter of the 2009/10 financial year out of a total of R86.2 billion of the total adjusted budget. The National Treasury further reported that there was a projected over-spending of R5.8 billion, mostly on personnel expenditure. Furthermore, the National Treasury reported that the provincial departments of Health of Mpumalanga and Free State had under-spent. In addition, the National Treasury reported that the provincial health sector had been under pressure as a result of compensation of employees. The provincial departments of health which experienced the biggest pressures were Eastern Cape (the worst affected), Gauteng and KwaZulu Natal.

 

The National Treasury reported that Comprehensive HIV and AIDS Grant had been adjusted upwards by R9 million to an adjusted budget of R4.3 billion. At the end of the third quarter, provincial departments had spent 62 per cent of the adjusted budget. The National Treasury further reported that the Provincial Department of Health of Free State had an adjusted budget of R299 million. On year-on-year growth comparison, the Provincial Department of Health ofFree State had spent 20.6 per cent less compared to the same period in the 2008/9 financial year. With respect to the Provincial Department of Health ofMpumalanga, the National Treasury reported that this provincial department had an adjusted budget of R296 million, but the actual spending was 52 per cent as a percentage of adjusted budget. The National Treasury reported that the Provincial Department of Health of Mpumalanga had under-spent by R96 million as at 31 December 2009. The National Treasury further reported that, on a year-on-year comparison, this is 32 per cent less compared to the same period in the 2008/09 financial year. Furthermore, the National Treasury reported that overall spending of provincial departments was 32 per cent less compared to the same period in the 2008/9 financial year.

 

With respect to Forensic Pathology, the National Treasury reported that the total adjusted budget for all provincial department was R527 billion and the projected outcome was R628 billion. The National Treasury further reported that the total adjusted budget for the Provincial Department of Health ofNorthern Cape was R31 million with a projected outcome of R21 million as at 31 December 2009. However, the Provincial Department of Health of Northern Cape had under-spent by R10 million and that, on a year-on-year comparison, this spending is less by 9.2 per cent compared to the same period in the 2008/9 financial year.

 

With respect to the Hospital Revitalization Grant, the National Treasury reported that an adjusted estimate of the grant was at R3.5 billion and provincial departments of health were projected to under-spent by R535 million. The National Treasury further reported that the under-spending by provincial departments of health was as follows: R7.9 million in Free State; R200 million in KwaZulu-Natal; R40 million in Limpopo; R194 million in Mpumalanga; R86 million in Northern Cape and R8 million in Western Cape. Furthermore, the National Treasury reported that, on a year-on-year comparison, provincial departments of health over-spent by 1.2 per cent.

 

The National Treasury advised the Committee that one of the issues to pay attention to was improved budgeting for the health sector. The National Treasury recommended that provincial departments of health should prioritise within limited financial resources, especially with respect to personnel spending in the KwaZulu-Natal and Eastern Cape; and on goods and services spending in Gauteng. The National Treasury further recommended that processes for determining salary adjustments, including the occupational specific dispensation (OSD), should be tied to available resources. The National Treasury stated that the National Department of Health should fully support and guide provincial departments of health during the implementation of major policy initiatives. The National Treasury proposed that the process used for determining salary adjustments should involve provincial departments of health and be in line with available funds. The National Treasury reported that the Hospital Revitalization Programme was the least spent grant amongst conditional grants (for example, the total projected under-expenditure is over R813 million as at 31 March 2010). Furthermore, the National Treasury indicated that the Provincial Department of Health of Mpumalanga showed continuous poor financial performance in most conditional grants.

 

The National Treasury revealed that there had been numerous instances of violation of the Division of Revenue Act within the health sector in comparison to other government sectors; including poor cash management; and supply chain management policy challenges. The National Treasury advised that proper planning should improve performance of grants in this sector.

 

2.2        The Province of KwaZulu-Natal

The KwaZulu-Natal’s Provincial Department of Health (PoKZN) reported that it was allocated R450 million for the Hospital Revitalization Grant and that the PoKZN had managed to spend R128 million (28 per cent) at the end of the third quarter of the 2009/10 financial year. The PoKZN reported that it had under-spent by R200 million at the end of the third quarter because the majority of its projects were delayed as a result of the inability to monitor projects owing to capacity constraints. The PoKZN further reported that it was the responsibility of the provincial department of Public Works to monitor these projects. The PoKZN added that if phase 1 of the project was delayed as argued above, the following phases are also delayed because they are dependent on the successful implementation of the initial phases.

 

The PoKZN reported that the major contributing factors to under-spending were the lack of cooperation from the provincial department of Public Works and the slow services provided by the contractors. The example of the King George V Hospital was used by the PoKZB where the completion of this hospital was delayed due to a slow progress on the work done by a contractor. Furthermore, the PoKZN reported that the provincial department of Public Works had tender procurement delays for some projects which led to the delay of subsequent phases of the same project. The PoKZN cited the failure to adequately monitor the consultancy work during designs and documentation as the main reason for the delay of many projects and the resultant under-spending. The PoKZN admitted that it did not react to building defects timeously, and did not have dedicated project managers to follow up on tender documentation delays and variation orders.

 

The PoKZN reported that the Lower Umfolozi Hospital project led the PoKZN to under-spend by R52 million because there were tender procurement delays by the provincial department of Public Works. Furthermore, the New Mother and Child Hospital budgeted for R365 million had been delayed for 16 months due to the inability by the provincial department of Public Works to finalise tender processes timeously. The PoKZN said it did not have monitoring capacity to detect inaccuracies with tender documents.  

 

The PoKZN reported spending was not in line with budget due to the following reasons: delays on construction as a result of earlier delays in the acquisition of health technology for the King George V hospital; the overspending for the Lower Umfolozi, Hlabisa and Rietvlei hospitals due to spill-over of purchases that had been scheduled for the previous years; the inavailability of dedicated resource to drive the aspect of Hospital Revitalization; Hospital Revitalization Planning was not aligned to Supply Chain Management processes and timeframes.

 

The PoKZN reported that it under-spent due to: non-approval of filling of critical posts due to the concerns that these additional staff costs are sustainable over the longer term  when the Revitalization grant is no longer available; the delay in the implementation of Hospital Information System due to late finalization of the Service Level Agreement and, subsequently, due to the moratorium imposed by the National Department of Health; and delays in the implementation of the Digital Radiography Picture Archiving Communication System / Radiography Information System.

 

The PoKZN argued that factors contributing to under spending came from the implementing agents. The PoKZN reported that it had no or very little control over implementing agents who prove to be inflexible and/or unwilling to change and speed things up. The implementing agents appointed consultants who were not qualified to do the work to the standard required or within the timeframes provided. Hospital design was complex and requires inputs from a group of specialists; however health specialist were not consulted. The PoKZN added that there was lack of capacity in the Hospital Revitalization Office; for example, there were no dedicated project managers for various categories of Health Technology, Quality Assurance and Organizational Development. Furthermore, Supply Chain Management was not properly managed and implemented resulting in project delays, cancellation and appeals; over and above there was weak project management and planning due to lack of capacity.

 

The PoKZN reported that, in the past, formal reporting from implementing agents was erratic and often inaccurate; and, Revitalization Project Managers, at the time of reporting, were attending contractor and consultant meetings so that they are updated about on-site progress and can act timeously. The PoKZN reported that a joint task team comprising the Department of Health, the Department of Public Works and other implementing agencies was in place, but could not meet regularly. The Joint Task Team was replaced by monthly Infrastructure Programme Management Committee meetings.

 

The PoKZN assured the Committee that, in the 2010/11 financial year, it plans to re-organize its infrastructure management unit in line with Project Management principles and to fill key management posts by appropriately qualified persons with formal training in built environment. The PoKZN further reported that the quality assurance process was being developed and improvements are expected during the 2010/11 financial year.

 

2.3 The Province of Limpopo

The Limpopo’s Provincial Department of Health (PoL) reported that Hospital Revitalization Grant for 2009/10 was R212 million and the province spent R117.8 million (56 per cent) and the balance was R94.4 million.

 

The PoL reported that a number of its projects were delayed due to various contributing factors. These contributing factors included: slow construction progress on sites by contractors which resulted in certain contracts being terminated; civil and building contracts were delayed due to finalization of Environmental Impact Assessment (EIA); project dependencies within sites had a ripple effect on all other projects to follow; late appointment of contractors by the Provincial Department of Public Works (DPW); and some contractors did not comply to specifications as outlined in the contracts.

 

With respect to performance monitoring and evaluation, the PoL reported that resident clerks of works have been appointed to assist in ensuring performance of contractors per site on a daily basis. The PoL said that, in future, measurement of construction works would be undertaken and paid for twice per month and projects will be monitored closely by DPW, Health Performance Monitoring Unit, and professional teams.

 

The PoL acknowledged that the Hospital Revitalization grant had under-performed in terms of spending. As a result, a Hospital Revitalization Programme Improvement Plan, supported at provincial level by Premier’s office, provincial treasury, DPW and implementing agents, was implemented in September 2009. The PoL stated that projects’ dependencies and slow performance of contractors delayed its spending plan and that forced the provincial department to project under spending of R40 million.

 

2.4 The Province of Mpumalanga

The Mpumalanga’s Provincial Department of Health (PoMPU) reported that the Comprehensive HIV and AIDS grant’s budget allocation was R200 million plus an adjustment of R96 million resulting to a total adjusted budget of R296 million. The PoMPU presented that it projected an under spending of R96 million at the end of the third quarter and the actual payments of adjusted budget was 52 per cent.

 

The PoMPU reported that under spending on HIV and AIDS conditional grant was due to the system that was used in the province which entailed delivery of service by the department and payments processed utilizing the equitable share budget. Thereafter the department claims the amount spent from Provincial Treasury. Secondly one invoice was received after the cut of date of payment.

 

The PoMPU reported that monitoring and evaluation officials monitor and support the implementation of the grant on a quarterly basis. The monitoring and evaluation officials monitor the implementation by visiting the accredited facilities and submitting reports to the provincial office in order to ensure effective monitoring and adequate support for all the facilities. Furthermore, compliance to reporting procedures was observed at all times and this, in turn, ensures that monthly, quarterly and annual reports, with both financial and non-financial indicators, are compiled and submitted to the National Department of Health, National Treasury and Provincial Treasury.

 

The PoMPU reported that the Comprehensive HIV and AIDS grant’s implementation experienced some challenges due to the increase in number of patients from an average of 1 800 to 2 000 new intake monthly whereas the PoMPU had projected a monthly intake of 1 600. The PoMPU added that the budget increase was not aligned to demands for these services. Furthermore, staff shortage affected the monitoring and evaluation of the service delivery. The PoMPU informed the Committee that poor infrastructure was hindering increase in the number of accredited facilities that are available in theMpumalanga province. The PoMPU argued that the accreditation of facilities, which is the competency of National Department of Health, should be fast-tracked.

 

The PoMPU informed the Committee that it has identified a number of solutions to the challenges that it is experiencing with respect to spending on conditional grant. The PoMPU said that budget allocation should be aligned to the demand of services. The PoMPU further said that it intends to strengthen its monitoring and evaluation unit. The PoMPU added that it intended to rehabilitate and upgrade a number of facilities in the province. The PoMPU said that more health care workers will be trained and that continuous support to home care givers in respect of stipend and care kits will be provided. Furthermore, non-medical voluntary counseling and testing sites will be increased.

 

With respect to Hospital Revitalization Grant, PoMPU reported that its adjusted budget was R498 million (R304 million plus a roll over of R194 million), the projected accumulative outcome was R304 million and its actual expenditure at the third quarter was R222 million. The PoMPU reported that a number of projects were behind schedule and that was negatively affecting the total costs of these projects as prices for material were increasing. The PoMPU reported total spending, at Rob Ferreira Hospital, of R217 million and the budget allocation was R159 million. At Ermelo Hospital, the budget allocation was R42 million and the total accumulative spending was R70 million. The Themba Hospital’s budget allocation was R62 million and the total accumulative spending was R80 million.

 

The PoMPU reported that Hospital Revitalization grant’s confirmation of the roll-over R154 million was conditionally approved in November 2009, which was subject to an audit of utilisations of funds. The required audit was conducted in January 2010; hence the office was still awaiting a final audit report. The PoMPU reported that R154 million has since been withheld by National Treasury and an application for rollover of funds based on existing commitments incurred in the 2009/10 financial year has been made.

 

The PoMPU reported that it relies on the Department of Public Works, Roads and Transport (DPW) as an implementing agent to ensure that there were site project managers in each hospital, and technical support was provided at all times to ensure that construction projects were completed on schedule. Furthermore, PoMPU said that, although it is the responsibility of Provincial Department of Public Works to monitor projects, PoMPU conducts quarterly reviews and site visits.

 

The PoMPU reported that it had submitted a total of 17 reports to the National               Department of Health, namely: 12 monthly reports, 4 quarterly reports and an annual report. The PoMPU reported that it conducted monthly site visits which were led by Hospital Revitalization Programme; the National Treasury conducted some site visits; and the National Department of Health conducted support visits.  The PoMPU further reported that there were visits by the Executive (namely, the Premier, the Provincial Portfolio Committee, and the Members of the Executive Council). Furthermore, the PoMPU reported that it held Steering Committee meetings and Site and technical meetings with consultants, monthly.

 

The PoMPU reported that there was a limited capacity to deliver health infrastructure by appointed contractors and consultants. The PoMPU acknowledged that it was unable to recruit and retain professional staff and that it had limited project management and planning skills. With respect to retainment of professionals, the PoMPU reported that it had motivated to pay market-related packages for these professionals. With respect to poor performance, the PoMPU recommended that it shall charge penalties on non-performing contractors and consultants. Furthermore, the PoMPU committed itself to the strengthening of its capacity in respect of contract management and planning.

 

 

 

2.5 The Province of Free State

The Free State’s Provincial Department of Health (PoFS) reported that its adjusted budget for Comprehensive HIV and AIDS grant was R299 million and it had spent R165 million (55 per cent) at the end of the third quarter of the 2009/10 financial year. The PoFS reported that under-spending was due to late allocation of R63 million adjusted budget which was mainly for the purchase of antiretroviral medication, consumables and laboratory tests.

 

The PoFS reported that the management of the grants was strengthened since managerial accountants were attached to each conditional grant. These managerial accountants produce and table monthly and quarterly reports to senior management which, in turn, produces annual reports.

 

For Hospital Revitalisation grant, the PoFS reported that its adjusted budget was R282 million and it had spent R129 million (46 per cent) at the end of the third quarter of the 2009/10 financial year.  The PoFS explained that under-spending was due to a number of challenges including: the poor performance by the implementing agents and lack of capacity in planning and technical expertise in project management. The PoFS reported that there was lack of managerial capacity to manage infrastructure projects. Furthermore, the PoFS further reported that under-spending was caused by none appointment of contractors leading to delays in the execution of projects, and poor contractor performance which led to termination of certain contracts.  Furthermore, the PoFS reported that the rollover of R34 million allocated through adjustment budget when there were spending bottle-necks worsen the spending level, and that the funds allocated for planning were not used.

 

The PoFS reported that it had put in place different measure to improve under expenditure in the Hospital Revitalization Grant. The PoFS further reported that it was reviewing its organizational structure and functions. And that technical expects who would be responsible for planning, implementation and monitoring of infrastructure projects will be appointed in the near future. Furthermore, the PoFS reported that it was working on improving relations with the implementing agents, through holding regular meetings, and that it intended to strengthen reporting mechanisms, with early warning systems in place. To strengthen its bidding processes, the PoFS revealed that a Provincial Infrastructure Bid Management Committee for efficient bid management had been established.

 

2.6 The Province of the Northern Cape

The Northern Cape’s Provincial Department of Health (PoNC) reported that, for Forensic Pathology Grant, its original grants budget allocation was R20 million and it had received an additional adjustment of R11 million. Therefore, its total allocation for Forensic Pathology Grant was R31 million. The PoNC reported that it had spent only R13 million at the end of the third quarter and R21 million was the projected outcome at the end of that period. The amount of R11 million rolled-over was meant for building of mortuaries (R10 million) and for goods and services (R1 million), and these were commitments made prior to the end of the 2008/09 financial year period.

 

The PoNC reported that the contributing factor to under-spending on the grant was the dispute between the department and a service provider. For example, a service provider alleged that it was owed for services performed and the PoNC disputed that services were rendered. The PoNC reported that it had requested a roll over to the amount of R13 million, which will be utilized for 2010/11 financial year.

 

2.7 National Department of Health

The National Department of Health (DoH) reported that it was aware of the challenges that the sector was faced with regarding capital expenditure. As a result, the DoH had initiated a programme whereby engineers shall be appointed for all provincial departments of health. These engineers were expected to protect the interests of the health sector in order to ensure that it had the necessary internal capacity and technical knowledge, and to advise on the awarding of tenders.

 

3. Observations

The Committee is of the view that the provincial departments of public works, as custodians of infrastructure development, needs to improve on monitoring of the health sector’s projects and to ensure that they are carried out as per schedule of the project plans. Furthermore, there are continuous challenges with respect to project management and lack of support from the National Department of Public Works.

 

The Committee notes that some provincial departments of health had performed much better than others in relation to the Hospital Revitalisation grant and some are in violation of the Division of Revenue Act. 

 

The Committee notes that capital budgets in the health sector had under-spent by R1.3 billion.

 

The Hospital revitalisation grant is the worst-spent grant in Government.

 

 

4. Recommendations

Having considered the presentations by the National Treasury and identified provincial departments of health on the third quarter spending for the 2009/10 financial year, the Select Committee on Appropriations recommends that the National Council of Provinces considers the following:

 

4.1  That the provincial departments of public works should investigate track records of contractors and examine them before awarding them with tenders in order to determine the ability of these contractors to successfully implement projects before them.

4.2   That all provincial departments of health should comply the annual Division of Revenue Act.

4.3   That the provincial departments of health should work with department of Public Works to improve spending on capital budgets and ensure they are spent fully.

4.4   That the provincial departments of health should improve the management of the Hospital Revitalisation grant.

 

Report to be considered.