ATC090908: Report: Fourth Quarter Expenditure Report as at 30 March 2009

Standing Committee on Auditor General

Report of the Standing Committee on Appropriations (SCOA) on the Fourth Quarter Expenditure Report as at 30 March 2009, dated 8 September 2009

 

The Standing Committee on Appropriations having considered Government expenditure for the fourth quarter of the 2008/09 financial year, reports as follows:

 

1.             INTRODUCTION

The SCOA was established in terms of section 4(3) of the Money Bills Amendment Procedure and Related Matters Act No.9 of 2009. Among its responsibilities, the Committee is required to consider and report on spending issues, and on actual expenditure published by the National Treasury. The Committee has adopted a tradition of inviting both National Treasury and the affected departments to account on government spending. This consultative approach gives the Committee an opportunity to interrogate departments on their spending with a view to identifying gaps and strengthening public spending.

 

In line with its mandate, the Committee held public hearings with the view to interrogate spending by various government departments. The hearings were held over two days and focused particularly on those national departments that had under-spent at the end of the 2008/09 financial year. The following departments appeared before the Committee:

Department of Transport;                          

Department of Labour;

Department of Water and Environmental Affairs;

Department of Health;

Department of Agriculture, Fishing and Forestry;

Department of Home Affairs; and

Department of Public Works;

 

The tabling of the 2008/09 fourth quarter expenditure report before Parliament, must be viewed and understood within the context of the current global economic conditions, and therefore supporting developmental initiatives under these circumstances, poses some challenges. The South African economy has, for the first time in 17 years, entered a recession. This calls for prudent management of public funds and elimination of wasteful and fruitless expenditure in public spending. As President J. Zuma has observed during the State of the Nation Address, “government will have to act prudently, no wastage, no rollovers of funds; every cent must be spent wisely and fruitfully”. This Committee is therefore instrumental in ensuring that such a commitment from the President is realised.

 

This report provides a detailed overview of government spending for the period 1 April 2008 to 31 March 2009. It further highlights spending patterns of national departments and draws the attention of Parliament to the findings and recommendations made in order to improve public spending.  

 

2.             THE REVIEW OF THE TOTAL EXPENDITURE

National departments were allocated an adjusted amount of R370.2 billion for the 2008/09 financial year, excluding the direct charge. Of the appropriated funds, R101.6 billion (27.44 per cent) was allocated to current payments, R258.5 billion (69.83 per cent) to transfers and subsidies, and R10.2 billion (2.76 per cent) to capital expenditure. Nineteen (19) departments (56 per cent) have spent within the range of 99.4 to 100.81 per cent of their budgets. An overall expenditure at the end of the fourth quarter is R368.6 billion (99.58 per cent) of the allocated budget. This is R1.6 billion (0.42 per cent) less than the appropriated funds. Although the national departments had under-spent, the year-to-year spending patterns reflect 1.3 per cent increase compared to previous year’s expenditure of 98.55 per cent.

 

The Current payments category reported the highest expenditure of 100.30 per cent of the allocated budget. The departments over-spent by R305.7 million (0.30 per cent) in this category. An amount of R257.5 billion was transferred to receiving entities, while R9.6 billion was spent on capital expenditure. It is important to note that the departments have under-spent on capital expenditure by R664.3 million (6.50 per cent), and by R1.2 billion (0.6 per cent) on transfers and subsidies. Some departments have over-spent, and others have under-spent at the end of the fourth quarter. This is a matter of concern since these kinds of spending patterns fall out of the departments’ projections. A detailed review of departmental over/under spending is provided in the following sections.

 

3.             OVER/UNDER SPENDING BY THE DEPARTMENTS IN THE 2008/09 FINANCIAL YEAR

 

3.1 OVER-SPENDING

Table 1 below provides a synopsis of the national departments that over-spent at the end of the fourth quarter. A detailed analysis of the factors that resulted in such overspending is provided under the economic classification section.

 

Table 1: Over-spending by departments for the Period 1 April 2008 to 31 March 2009

Department

Adjusted Budget (R'000)

Actual Expenditure April 08-Mar 09

Difference

 

Amount

%

Parliament

913 799

           1 041 675        (113%)

127 876

-12.28

Presidency

311 735

               324 923

(104%)

13 188

-4.06

Correctional Services

12 338 820

          12 822 641  (103%)

483 821

-3.77

Transport

24 492 840

          24 817 938 (101%)

325 098

-1.31

Total

38 057 194

          39 007 177

949 983

-2.44

 

 

 

 

 

 

 

 

 

 

 

Performance of over-spending departments compared to 2007/8 financial year

 

 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Above 0 = under spending

Below 0 = over spending

 

Four departments have over-spent at the end of March 2009. These are the Presidency, Parliament, Correctional Services and Transport. Parliament reported the highest over-spending of R127.9 million (12.28 per cent) compared to its budget of R913.8 million. The Presidency over-spent by R13.19 million, while the departments of Correctional Services and Transport have over-spent by R483.82 million and R325.10 million, respectively. The overall over-spending by these departments amounts to R950 million or 2.44 per cent of their overall budget.  This suggests that they have incurred an unauthorised expenditure of R950 million, which might need an approval of Parliament in terms of section 34 (1) of the Public Finance Management Act (PFMA). 

 

3.2 UNDER-SPENDING

Table 2 below provides the list of departments that have under-spent at the end of March 2009. Notably, some of the least spending departments are at the centre of service delivery.

 

 

Table 2: Under-spending by departments for the Period 1 April 2008 to 31 March 2009

Department

Adjusted Budget (R'000)

Actual Expenditure Apr 08-Mar 09

Difference

 

Amount

%

Water Affairs & Forestry

7 036 616

6 531 571 (92%)

505 045

7.73

Labour

1 747 606

1 642 841(94%)

104 765

6.38

Home Affairs

4 816 608

4 666 560(96%)

150 048

3.22

Agriculture

            2 937 748

 

      2 847 871(96%)

89 877

3.16

Public Works

4 301 992

4 189 697(97%)

112 295

2.68

Health

15 851 169

15 464 469(97%)

386 700

2.50

Foreign Affairs

5 569 787

5 440 717(97%)

129 070

2.37

Total Expenditure

42 261 526

40 783 726

1 477 800

3.62

           

 

The departments reflected in Table 2 above are among those that have under-spent during the period under review. Collectively, they spent R1.5 billion (3.62 per cent) less than their budgets. The Department of Water Affairs and Forestry was the least spending department having spent only 92 per cent. It had spent R505 million (7.73 per cent) less than its adjusted budget.  Among others, these included the departments of Labour, Home Affairs, Agriculture, Public Works, Health and Foreign Affairs. A detailed analysis and explanatory notes for their under-spending is provided under the economic classification section.

 

 

 

 

 

 

Performance of under-spending departments compared to 2007/8 financial year

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4.             ECONOMIC CLASSIFICATION

Government expenditure comprises three economic classifications, namely, current payments, transfers and subsidies, and capital expenditure. This section provides a review of departmental spending according to each economic classification, and also provides explanatory notes on the expenditure pattern.

 

4.1        CURRENT PAYMENTS

Current payments are categorized into two main components, namely, compensation of employees and goods and services. Current payments were allocated an adjusted budget of R101.3 billion in the 2008/09 financial year. The budget for this category was increased by approximately R10 billion in the 2008/09 budget of R91 billion. Collectively, departments have spent R101.6 billion (100.30 per cent) at the end of the fourth quarter. This translates into an over-spending of approximately R305.7 million (0.30 percent) on their budgets. The spending on current payments reflects an increasing trend compared to the 2007/08 expenditure of R88.7 billion (98.83 per cent).

 

As in the previous years, a number of departments had shifted funds from and to current payments, and made virements during the implementation of their budgets. In this regard, funds allocated for compensation of employees were shifted due to unfilled vacancies while delays in the supply chain management processes resulted in funds being shifted from goods and services. Even though departments had shifted funds in current payments, this trend was decreasing as they only shifted R275.4 million in 2008/09 compared to R420.9 million in the 2007/08 financial year.

 

A number of departments (approximately 15) have under-spent on current payments in the 2008/09 financial year. The departments which had significantly under-spent their budgets for this category are highlighted in the table below. Some of them had also under-spent in the 2007/08 budget. Of particular concern is that some of these departments fall within the Social Service cluster which has been identified as a national priority, including education and health. The continued lack of capacity and under-spending has a direct impact on government’s poverty alleviation efforts. 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Table 3: Lowest Current Expenditure as a Percent of Budget Allocation 

Department

Adjusted Budget (R'000)

Actual Expenditure April 08-Mar 09

Budget Spent

Difference (Over)/Under)

 

%

Amount

%

Sports & Recreation

261 581

223 409

85.41

38 172

14.59

Transport

1 041 104

983 194

94.44

57 910

5.56

Science & Technology

271 043

260 264

96.02

10 779

3.98

Labour

1 194 543

1 121 323

93.87

73 220

6.13

Education

1 215 774

1 188 227

97.73

27 547

2.27

Health

935 406

916 972

98.03

18 434

1.97

Public Service & Admin

1 294 172

1 244 798

96.18

49 374

3.82

GCIS

281 543

269 192

95.61

12 351

4.39

 

The Department of Sport and Recreation was allocated an adjusted budget of R261.6 million for current payments. A substantial amount of R201.4 million was allocated to goods and services, while R60.2 million was for compensation of employees. The department had spent R223.4 million (85.41 per cent) at the end of the fourth quarter. It had under-spent by approximately R38.2 million (14.59 per cent) of its budget. Compensation of employees partly contributed to this under-spending owing to a number of vacancies which included the position of the Chief Operations Officer (COO) and that of the Director: Information Technology (IT). A huge under-expenditure has been identified under Sport Support Programme due to delays in signing the agreement with the Local Organising Committee (LOC) for the training of volunteers.

 

The Department of Transport (DoT) was allocated an adjusted budget of R1.04 billion for current payments. It had spent R983.2 million (94.44 per cent) at the end of the financial year. This reflected an under-spending of R57.9 million (5.56per cent) on the allocated budget. The under-spending was largely influenced by major factors, namely; the under-spending in the compensation of employees, delays in the appointment of the service providers and the high rate of vacancies, particularly at a management level which had been indicated to have 35 per cent vacancy rate. Moreover, the Department had placed a moratorium in the filling of vacant posts to avoid an over-spending that would occur if all vacant posts were to be filled. During the adjustments period, the Department was allocated an amount of R46.4 million which it had not requested. This money was allocated towards the compensation of employees.  Owing to this unexpected amount, the department was left with an under-spending of R13 million in the administration programme.

 

The Committee further requested the Department to submit a written report detailing the status of roads classification which, to date, has not been received by the Committee.

 

The Department of Science and Technology received an adjusted budget of R242.9 million in the current payments. The Department had shifted funds from other categories to current payments, thus increasing its adjusted budget to R271 million. It had spent R260.2 million (96.02 per cent) of the R271 million budget, an under-spending of R10.8 million (3.98per cent). In the fourth quarter alone, the Department has spent R88.7 million or 32.7 per cent of the current payments budget. This resulted in a March spike since the expenditure for the fourth quarter was way above the general benchmark of 25 per cent.  The under-spending had emanated from goods and services as well as a halt in overtime activities due to uncertainties regarding the approval of virements request made to the National Treasury.

 

The Department of Labour was allocated an adjusted budget of R1.2 billion for current payments. It had spent R1.1 billion (93.87 per cent) of the allocated budget. While the Department had spent 93 per cent in the aggregate, it had spent within general percentage benchmark (25 per cent) in the fourth quarter.  However, the Department had reported an under-spending of R73.2 million or 6.13 per cent in aggregate. This was partly due to a number of vacancies within the Department. The Department faced difficulties in filling some critical posts such as labour inspectors due to the lower salary levels being offered.  Furthermore, the Department experienced some delays in launching the Repair and Maintenance Programme on the Laboria House building and at various Provincial and Labour Centre offices. The Department further experienced delays in the appointment of consultants for five pilot projects.

 

The Department of Education received an adjusted budget of R1.2 billion for current payments. It had spent approximately 97.7 per cent of this budget at the end of the fourth quarter. The department had under-spent by R27.5 million (2.27 per cent) from its budget. This was due to the resignation of the Integrated Quality Management System (IQMS) staff during the financial year, and those posts remained vacant. It is also important to note that the Department had made some savings in the area of printing, which was required for the Systemic Evaluation Project. Master copies were distributed to schools rather than printing copies for all students and this had contributed to the under-spending.

 

The Department of Health was allocated an adjusted budget of R943.7 million for current payments. This budget had been reduced to R935.4 million as funds were shifted by the department. Of the R935.4 million, the department had spent R917 million (98.03 per cent), which is R18.4 million (1.97 per cent) less than the budget. Among other reasons for this under-spending, was a delay in finalising a tender for an audit of the Nursing Colleges project.  Furthermore, some funds earmarked for the completion of the District Health Information Systems project could not be spent. The under spending was attributed to vacant positions, late appointment of specialists, delays in passing journals related to payment of salaries and delays in the relocation to the new Civitas Building as a result of incomplete processes between DPW and contractors. In some cases goods purchased could not be paid for in time due to the containment measures implemented in the Department.

 

The Department of Land Affairs received an adjusted budget of R1.3 billion for current payments. The Department had spent R1.2 billion (96.18 per cent) of this budget. It had under-spent by R49.4 million (3.82 per cent) due to its inability to fill vacant posts as a result of unattractive salaries and delays in the implementation of the revised organizational structure. 

 

The Government Communication and Information System (GCIS) was allocated an adjusted budget of R282.4 million for current payments. This was reduced by approximately R1 million to R281.5 million, as funds were shifted by the Department. The Department had spent R269 million (95.61 per cent) of the R281 million budget. The Department reported an under-spending of R12.4 million (4.39 per cent) from its budget. This was partly due to the delays in filling vacant posts and in upgrading the security system at the head office.  Furthermore, this was attributed to the outstanding commitment in the energy efficiency campaign. A roll over had been requested from National Treasury in this regard. 

 

4.2        TRANSFERS AND SUBSIDIES

National departments had reported an overall expenditure of R257.5 billion (99.54 per cent) on transfers and subsidies. The year-on-year expenditure trend had slightly increased compared to the previous year’s expenditure of 99 per cent. With the exception of nine departments (26.47 per cent), 73.53 per cent of the national departments spent within the margin of 99.15 to 100 per cent on transfers and subsidies. The Presidency, Department of Transport and Departments of Land Affairs exceeded their budget allocations for transfers and subsidies. The departments of Health, Arts and Culture, Agriculture, Public Service and Administration, and Water Affairs and Forestry reported under-spending on transfers and subsidies. The table below reflects the departments that have over/under-spent on transfers and subsidies.

 

 

 

 

 

 

 

Table 4: Spending pattern on transfers and subsidies

Department

Adjusted Budget (R'000)

Actual Expenditure April 08-Mar 09

Difference (Over)/Under

 

Amount

%

Presidency

28 464

30 577

-2 113

-6.91

Transport

23 445 555

23 829 125

-383 570

-1.61

Land Affairs

3 838 190

3 893 331

-55 141

-1.42

Health

14 867 844

14 506 135

361 709

2.49

Arts & Culture

1 778 316

1 734 430

43 886

2.53

Agriculture

1 895 758

1 813 386

82 372

4.54

Public Service & Admin

4 160

3 942

 218

5.53

Water Affairs & Forestry

3 849 440

3 331 066

518 374

15.56

 

The Presidency was allocated R28.5 million for transfers and subsidies. This amount included transfers to National Youth Commission and other agencies. The Presidency spent R30.6 million of the budgets, exceeding its allocation by R2.1 million (6.91 per cent). It only spent 10.28 per cent of budget allocated for Public Corporations & Private Enterprises, while excessively exceeding budget allocation for the Household programme. An amount of R24 000 was allocated for Household programmes, but R2.2 million had been spent by the end of the financial year. The over-spending in this particular programme translated to 9195.83 per cent

 

The Department of Transport was allocated R23.4 billion for transfers and subsidies. This included, among others, transfers for the Public Transport Infrastructure and Systems Grant (PTIS), bus subsidies and transfers to public entities. The department spent R23.8 billion on transfers and subsidies, exceeding its budget by R383.6 million (1.61 per cent). It exceeded its budget on Public Corporations and Private Enterprises by R646.7 million. This over-spending was mainly due to the unsustainable escalation of bus subsidies, as funds allocated for subsidies were deemed insufficient to fulfil contractual obligations. Furthermore, the Integrated Planning and Inter-sphere Co-ordination programmes under-spent by R475 million on transfers and subsidies. An amount allocated to South African Commuter Corporation (SARCC) amounting to R210 million for the Public Transport Infrastructure and Systems (PTIS) for FIFA 2010 World Cup Infrastructure was not transferred due to delays in the signing of a Memorandum of Understanding (MoU). Furthermore, R250 million was under-spent on the PTIS allocation to provinces, as the department withheld funds allocated for Tshwane Municipality due to the lack of evidence for the commitment of funds. The Department had, however, requested roll-overs in this programme.

 

The Department of Land Affairs was allocated an adjusted budget of R4 billion for transfers and subsidies. A substantial amount of these transfer funds was allocated to both Restitution and Land Reform programmes. The Department shifted R1.3 million after the budget adjustments (September) from transfers and subsidies, reducing its budget to R3.8 billion. The Department had, however, reported an expenditure of R3.9 billion, which was R55.1 million (1.44 per cent) more than the adjusted figure of R3.8 billion. It is important to note that the Department exceeded its budget for Public Corporations and Private Enterprises by R54.8 million or 2197.75 per cent, while it has only transferred R25 million (51.87 per cent) to Provinces and Municipalities. Furthermore, of the R2.1 million allocated for non-profit organisations only R1.5 million (74.30 per cent) was transferred at the end of the financial year.  

 

The Department of Health was allocated an adjusted budget of R14.9 billion for transfers and subsidies. A substantial amount (R14.4 billion) of these transfer funds was allocated to provinces and municipalities. Of these transfers to provinces, R14.3 billion was for conditional grants including Comprehensive HIV and AIDS, Hospital Revitalisation and National Tertiary Services grants. The Department had spent R14.5 billion on transfers and subsidies at the end of 2008/09 financial year, which is R361.7 million (2.49 per cent) less than its budget. This was largely due to an amount of R334.2 million (2.33 per cent) not being transferred to provinces and municipalities. An amount of R323.9 million was withheld from the Hospital Revitalisation and Forensic Pathology Services conditional grants. This included R170.4 million for Western Cape and R153.5 million for Mpumalanga. This was attributed to delays in awarding tenders and some invoices not being paid before the year end. Furthermore, funds amounting to R21 million were transferred late to Lovelife due to delays in the finalisation of Service Level Agreements.  Part of the unspent funds was the budget of the District Health Information Systems project. A certain amount of transfers to the Northern Cape Public Works could not be transferred due to the delays in the appointments of contractors.  The under spending was also attributed to the unspent funds of the St Elizabeth and Frontier Hospitals due to delays in the tender process.  Part of the unspent funds included the budget of the Upington Hospital and Kimberly Mental Hospital whose commencement was delayed.

 

The hospital revitalization programme started off with very low spending patterns which led to the National Treasury withholding funds. The Department pulled all stops to improve spending, however, the funds from the National Treasury were not forthcoming. This led to a challenge of funding the programme. As a result of the Presidents announcements that Public Private Partnership (PPP) would be used to fund the programme, the department was looking at ways in which this could be done. It was noted however, that PPP’s often took long to reach agreements. In previous cases, the state often ended up spending more than what it should as a result of poor capacity to interrogate contracts and agreements. The Minister of Health had requested that the department should ensure that there is engineering capacity within the department to assist in the projects. It was reported that in Limpopo, this proved to be useful.

 

The Department of Arts and Culture was allocated an adjusted budget of R1.9 billion in the transfers and subsidies category. Departmental agencies and accounts received the highest share of this budget (R1.2 billion). The Department shifted R839.8 million from transfers and subsidies during the budget implementation, reducing its budget to R1.8 billion. The Department had reported an expenditure of R1.7 billion at the end of the financial year. This was R43.9 million (2.53 per cent) less than the adjusted figure of R1.8 billion. Among other things, this was due to funds not being transferred for Cultural Industries projects as fewer business plans met the required standards.

 

The Department of Agriculture received an adjusted budget of R1.9 billion for transfers and subsidies. These transfer funds included R60 million for Development Bank of South Africa (DBSA) to finance the Ilima food production projects.  The Department reported an expenditure of R1.8 billion at the end of the fourth quarter. It had under-spent by R82.4 million (4.54 per cent) on its budget. Paramount among the reasons for this under-spending was a failure to transfer R60 million to DBSA for Ilima food production projects, since the MoU had not been signed by the DBSA. Of the unspent funds, R20 million was for disaster relief (swine fever). The Department explained that fewer cases (swine fever) than anticipated were reported, hence the under-spending.

 

The Department of Public Service and Administration received an adjusted budget of R1.4 million for transfers and subsidies. Funds amounting to R2.7 million were shifted after the budget adjustments (September 2008) from other economic classifications to transfers and subsidies. The budget for transfers and subsidies increased to R4.2 million as a result of this shift. The Department recorded an expenditure of R3.9 million at the end of the financial year, which was R218 000 (5.53 per cent) less than the adjusted figure of R4.2 million. It is important to note that Public Service Education and Training Authority (PSETA) expenditure was reclassified and its expenditure was internalised within the Department’s budget. This was attributed to the operational challenges of PSETA as a result of the board not being appointed.

 

The Department of Water Affairs and Forestry was allocated an adjusted budget of R3.3 billion for transfers and subsidies. An amount of R2.2 billion was allocated to Departmental agencies and accounts. The Water Trading Account which is responsible for maintenance and construction of water infrastructure was allocated R1.9 billion of this budget. This included funding for the construction of De Hoop Dam. The Department shifted funds amounting to R500 million to transfers and subsidies after the budget adjustments (September) increasing its budget to R3.8 billion. It had spent R3.3 billion of this budget, under-spending by R518.4 million (15.56 per cent). Of the above figure, the under-spending of R505 million was attributed largely to the De Hoop Dam Project.  The Department has, however, indicated that these funds were targeted to be used for other infrastructure projects. Of these funds the National Treasury approved an amount of R265 million to be used for the Nandoni Dam, Inyaka Water Treatment Works and the Hluhluwe Regional Water Scheme.

 

The Committee was informed that the department had a Water Trading Entity through which suppliers were paid. The entity had to produce an invoice prior to the department releasing funds. A further R250 million in the form of a roll-over was earmarked for Water Services Programme. This rollover is now occurring for the second time.

 

The Committee expressed concern about:

·         Funds being rolled over more than once but still remaining unspent;

·         Departments not disclosing amounts shifted from capital payments to transfers and subsidies;

·         Legality of the transfer of funds from capital to transfers and subsidies in terms of the Public Finance Management Act (PFMA); and

·         The perpetual shifting of funds as a result of poor planning.  

 

4.3        CAPITAL EXPENDITURE

 

Capital expenditure (CAPEX) comprises five main items namely: buildings and other fixed assets; machinery and equipment; cultivated assets; software and other intangible assets; and land and sub-soil assets. This category was allocated an adjusted budget of R10.2 billion, an increase of approximately R910 million (8.9 per cent) compared to the 2007/08 budget. The national departments had collectively spent R9.6 billion (93.5 per cent) by the end of the fourth quarter. They reported an overall under-spending of R664.3 million (6.50 per cent) in their budgets.

 

Capital spending accelerated dramatically through the year, from 12.1 per cent in the first quarter, to approximately 26.2 per cent in the fourth quarter. Although there may be legitimate reasons for this, with many departments suggesting that capital spending was linked to procurement, which is only finalized late in the year, this level of expenditure is cause for concern, since some of the departments (approximately 5) spent less than 90 per cent of their capital payments budget. The least spending departments on capital expenditure are highlighted in the table below.

 

Table 5: Lowest Capital Expenditure as a Percent of Budget Allocation 

Department

Adjusted Budget (R'000)

Actual Expenditure April 08-Mar 09

Budget Spent

Difference (Over)/Under)

 

%

Amount

%

Public Works

1 177 192

1 026 035

87.16

151 157

12.84

Foreign Affairs

1 237 850

1 043 202

84.28

194 648

15.72

Labour

39 276

12 123

30.87

27 153

69.13

Health

47 919

41 362

86.32

6 557

13.68

Home Affairs

331 859

230 042

69.32

101 817

30.68

 

The Department of Public Works (DPW) was allocated an adjusted budget of R1.2 billion for capital expenditure. A substantial amount of R1.1 billion was earmarked for Building and other fixed structures. The department had spent R1 billion (87.16 per cent) of its capital budget. It reported an under-spending of approximately R151.2 million (12.84 per cent) This was attributed to the timing difference of processing payments to the Property Management Entity (PMTE) which bills all capital projects including DPW. A number of capital projects were still not finalised by the end of March 2009. Furthermore, inadequate project management capacity in some areas, including Freedom Park and Re-Kgabisa Tshwane capital projects had also contributed to the under-spending.

 

The Department of Foreign Affairs (DFA) received an adjusted budget of R1.3 billion for capital payments. Of this budget, R1.2 billion was allocated to buildings and other fixed structures. The Department shifted funds from this category during budget implementation, decreasing its budget to R1.2 million. Of the 1.2 billion budget, the department had only spent R1 billion (84.2 per cent) by the end of the fourth quarter. The Department under spent by R194.6 million (15.72 per cent) due to delays in completing capital projects in missions. These included the Pan African Parliament (PAP) campus.

 

The Department of Home Affairs received an adjusted allocation of R159.2 million for capital payments. The department increased this amount after the budget adjustments (September) by more than 50 per cent to R331.9 million. A significant shift had been identified to be on machinery and equipment, which increased from R44.9 million to R217.6 million. The Department reported an expenditure of R230 million (69.3 per cent) on capital payments. This was an under-spending of R101.8 million (30.68 per cent) at the end of the fourth quarter. It is important to note that all the funds allocated for software and other intangible assets amounting to R114.2 million were not spent during the period under review. The under spending was attributed to the Smart Card ID budget which was halted by delays in finalising tendering processes and the Advanced Passenger Processing (APP). Of the R114.2 million an amount of R110 million was used for the “Who Am I Project”. The use of these funds was approved on the basis of an expectation that the SITA would not deliver on the smart ID and therefore the funds would be used for the above mentioned project.

 

The Committee was informed that the tender process in respect of the Smart ID Card was audited by the AG’s office. The Board at SITA ordered a forensic audit to take place, but the Department was still awaiting the results of the audit.  

 

The APP Project was created for the 2010 Soccer World Cup to verify passengers who were boarding aircrafts from their countries of origin.  The APP project was done a foreign company commissioned by SITA. Of the contract amount, R30 million of the funds has already been paid. A rollover of R39.6 million was approved by the National Treasury in this regard. It was also reported that the bulk of the unspent funds was under administration programme. 

 

The Committee queried the fact that the department was allowing provincial offices to overspend. The department explained that the intention was not to let the provincial offices deliberately overspend. It was reported that a saving / under-spending in another province allowed for provision to be made for a province that was overspending. This was a guarded spending with the view to ensure that the department delivered on its mandate. The Committee maintained that the practice was improper.

 

Department of Health was allocated R47.9 million for capital expenditure. These funds were earmarked for machinery and equipment. The department spent R41.4 million (83.6 per cent) of these funds. It had under-spent by R6.6 million (13.68 per cent) from its budget due to unspent funds for the enhancement of the Civitas Building Project.

 

The Department of Labour was allocated R38.3 million for capital payments. It increased this allocation after the budget adjustments by approximately R1 million to R39.3 million. These funds were shifted from other categories to machinery and equipment. The department had spent R12.1 million (30.87 per cent) of these funds by the end of the fourth quarter. This was the highest under-spending in this category amounting to R27.1 million (69.13 per cent) of the capital budget. This was attributed to low spending in the Building and fixed structures at the Labour Centres by the Department of Public Works. This included the Rustenburg Offices which were located in a heritage site. Other delays in commencing capital works projects were experienced at Mount Ayliff and Bochum. The discovery of Dolomite at Indlela, as reported during the second quarter still delayed the commencement of that project. This slow spending trend in this category is unacceptable, since it is instrumental in creating jobs that are most needed by the economy. 

 

Committee was concerned that the CFO was not the right person to respond to its questions. An alternative date would be identified wherein the Director General would account in person for the poor spending by the department.

 

5.             SUMMARY OF FINDINGS

An analysis of the 2008/09 fourth quarter has identified a number of challenges in relation to the budget implementation and expenditure monitoring. The most prominent challenge faced by almost every Department that has under spent was the prevalence of vacancies. A number of departments failed to spend 100 per cent budget mainly due to the high rate of vacancies. The following findings were identified by the Committee during its scrutiny of public spending.  

 

·         The year-on-year spending by the national departments had slightly increased. The overall expenditure was at 99.58 per cent compared to 98.55 per cent from the 2007/08 financial year. The departments exceeded their budget on current payments by 0.30 per cent, while 99.54 per cent of the funds allocated for transfers and subsidies were transferred to the receiving entities. The departments increased their spending on capital expenditure from 85.62 per cent in 2008 to 93.50 per cent in 2009 but more effort was still needed in this category.

 

·         The overall expenditure of national departments was characterised by virements and the shifting of funds as well as the rollovers request from the National Treasury.  Some departments indicated their intention to request rollovers from the National Treasury in the 2009/10 financial year. If no proper measures are in place, this might result to the recurrence of this under-spending, particularly in the last quarters of the 2009/10 financial year.

 

·         Some national departments, including Presidency, Parliament, Transport and Correctional Services had recorded over-spending of approximately R1 billion at the end of the fourth quarter. It is envisaged that Parliament might, in terms of section 34 of the PFMA, be required to approve an unauthorised expenditure of approximately R1 billion, as a result of this over-spending.

 

·         While the disparities of under-spending might not be huge, the Committee was concerned about such under-spending, particularly by the departments in the social services cluster that are regarded as the pillars of service delivery. This might result to critical services not being delivered to communities and subsequently result in the eruption of service delivery protests symbolising dissatisfaction about the deliver of public services.

 

·         Late submissions and quality of business plans, high vacancy rate, skills shortage, delays in tender processes, and delays in both submitting and signing necessary documents (e.g MoUs, SLAs etc) continued to impact negatively in government spending.

 

·         Some funds earmarked for conditional grants were not transferred to respective provinces. These included among others, Hospital Revitalisation, HIV and Aids (under Education), and a Bulk Infrastructure grants.

 

·         Spending trends by some departments on both capital and infrastructure projects was concerning as projects might be delayed due to under-spending of the allocated budgets. This was a result of the poor planning and misalignment between the financial planning and project management. The particular concern of the Committee was that some of these projects were linked to 2010 FIFA World Cup and if necessary measures were not taken they might result in undesired outcomes.

 

6.             RECOMMENDATIONS

·         The current economic recession has resulted in job losses. The Committee recommends that in order to reduce the high vacancy rate government should start a vigorous campaign of filling vacant positions in all government departments.

·         The departments should report on funds transferred to entities, provincial department, and local government.

·         In line with the commitment by government that there would be “no wastage and no roll-over of funds”, departments should take action to minimise the perpetual shifting of funds and virements that characterises government expenditure.

·         The Committee recommends that proper planning and management be ensured for infrastructure expenditure. These include delays in supply chain management, lack of feasibility studies and postponement of projects.

·         Given the current economic recession, austerity measures must be put in place to ensure economical utilisation of funds by government. 

 

Report to be considered

Documents

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