ATC120530: Report Third Quarter expenditure for the 2011/12 Financial Year, dated 30 May 2012

Standing Committee on Auditor General

REPORT OF THE STANDING COMMITTEE ON APPROPRIATIONS ON THE THIRD QUARTER EXPENDITURE FOR THE 2011/12 FINANCIAL YEAR, DATED 30 MAY 2012

 

The Standing Committee on Appropriations, having heard briefings and considered the third quarter expenditures of national departments for the 2011/12 financial year, reports as follows:

 

1. Introduction

 

The Standing Committee on Appropriations (the Committee) was established in terms of section 4(3) of the Money Bills Amendment Procedure and Related Matters Act No.9 of 2009. The Act requires the Committee 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 the 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 identify and strengthen gaps in public spending. The Committee is established as a strategic centre to flag issues which might impact negatively on service delivery through scrutiny of government spending. As such, it agreed during its business planning session to move swiftly towards balancing its expenditure monitoring with actual performance.

 

This report provides a detailed overview of government spending for the period 1 April 2011 to 31 December 2011. It intends to highlight spending patterns of national departments and to draw the attention of Parliament and the Executive to findings and recommendations made for improved public spending.

 

2. The Review of the Total Expenditure

 

The national departments were allocated an adjusted budget of R505.1 billion for the 2011/12 financial year, which excluded the direct charge of R388 billion. An amount of R149.7 billion (29.4 per cent) was allocated to current payments (R94.2 billion for compensation of employees and R54.3 billion for goods and services), R343.3 billion (67.9 per cent) to transfers and subsidies, and R12.1 billion (2.4 per cent) to capital expenditure.

 

2.1 The comparison of overall budgets allocations and expenditure patterns of the three year period

 

There was an increase over time in the budget allocation and a decrease on the third quarter expenditure trends for the past three financial years (2009/10 to 2011/12). The budget for the third quarter has increased by 14 per cent between the 2009/10 and 2010/11 financial years and by only 8 per cent between the 2010/11 and 2011/12 financial years.

 

The overall expenditure at the end of the third quarter of the 2011/12 financial year was R363.6 billion (71.8 per cent) of the adjusted budget. The government spending has shown a decline from 74.4 per cent in the 2009/10 financial year, 73.4 per cent in the 2010/11 financial year and 71.8 per cent in the 2011/12 financial year. The expenditure of the departments has not been able to keep up with the budget increase in government for the previous three years. Closer scrutiny on government spending was therefore required and stricter measures needed to be put in place to strengthen budget implementation and monitoring. The aforementioned indicated a negative (inverse) relationship between budget allocation and actual expenditure. This had a potential to negatively affect service delivery and the delivery of the overall government priorities such as education, health, rural development, crime and corruption , infrastructure development and job creation. The President of the Republic of South Africa , Mr J G Zuma, in his State of the Nation Address on 9 February 2011, declared the 2011/12 financial year as a year of job creation but the decline in the expenditure trend suggested that some of these commitments may not be met by government. Notwithstanding the fact that this was the third quarter expenditure pattern, it was important that they are highlighted to ensure improvements prior to the end of the financial year. If these expenditure patterns were to continue, there would be a higher possibility of it undermining the bold plans and projects that were announced during the State of the Nations Address as well as during the deliberations on the budget votes of departments.

 

3. Spending by departments in the 2011/12 financial year

 

The National Government consists of 38 budget votes in total, of which 11 departments were identified to have reported under- or over-expenditure. These departments included: the departments of Performance Monitoring and Evaluation; Health; Rural Development and Land Reform; Water Affairs; Women, Children and People with Disabilities; Correctional Services; National Treasury; Human Settlement; Basic Education; Cooperative Governance and Traditional Affairs, and Communications. Table 1 (below) provides the actual expenditure of the 11 selected departments for the period 1 April to 31 December 2011.

 

 

Table 1: Actual expenditure of the 11 selected departments as at 31 December 2011

 

	Department	Adjusted Budget	Actual Expenditure Apr 31 Dec 2011
				%
1	Department of Communications	R2 billion	R923.9 million	46.13
2	Department of Water Affairs	R9 billion	R4.2 billion	46.86
3	Department of Performance Monitoring and Evaluation	R96.2 million	R49.8 million	51.81
4	National Treasury	R23.9 billion	R14.3 billion	60.06
5	Department of Rural Development and Land Reform	R8.1 billion	R4.9 billion	60.23
6	Department of Cooperative Governance	R48.2 billion	R31.6 billion	65.59
7	Department of Basic Education	R14.1 billion	R9.2 billion	65.79
8	Department of Correctional Services	R16.7 billion	R11.4 billion	68.61
9	Department of Human Settlement	R22.8 billion	R17.1 billion	74.97
10	Department of Health	R25.9 billion	R19.7 billion	75.96
11	Department of Women, Children and People with Disabilities	R143.1 million	R113.7 million	79.45

 

In light of the above, the Committee invited the following six Departments for hearings on the Third Quarter Expenditure for the 2011/12 financial year:

 

· Department of Rural Development and Land Reform;

· Department of Correctional Services;

· Department of Cooperative Governance and Traditional Affairs;

· Department of Water Affairs;

· Department of Women, Children and People with Disabilities; and

· Department of Communications.

 

3.1 Department of Rural Development and Land Reform

 

The Department of Rural Development and Land Reform (the Department) was allocated an amount of R8.1 billion for the 2011/12 financial year. At the end of the third quarter the Department had spent R4.9 billion (or 60.2 per cent). The Department had projected to spend R6.1 billion (or 75 per cent) at the end of the third quarter which resulted in an under expenditure of R1.2 billion (or 14.8 per cent).

 

3.1.1 Expenditure per programme

 

The Department’s budget consisted of five programmes, namely Administration, Geospatial and Cadastral Services, Rural Development, Restitution, and Land Reform. Programmes that have contributed to the Department’s under expenditure are explained in detailed hereunder.

 

Administration:

Programme 1 was allocated an amount of R911.4 million for the 2011/12 financial year. At the end of the third quarter, the Department had spent R614.1 million or 67.3 per cent. The Department had projected to spend R684 million (or 75 per cent) resulting in an under expenditure of R70.1 million (or 7.7 per cent). The reasons for this under expenditure were as follows:

 

· The non-filling of funded vacant posts and restructuring; and

· Transfer of payments not being made under the administration programme.

 

Geospatial and Cadastral Services:

Programme 2 was allocated an amount of R555.9 million for the 2011/12 financial year. At the end of the third quarter, R366.1 million (or 65.8 per cent) was spent. The Department had projected to spend R417 million (or 75 per cent) at the end of the third quarter. The Department had therefore under spent by R50.9 million (or 9.2 per cent). The reasons for the under-expenditure were as follows:

· The lack of skills in the cadastral and survey section; and

· Unpaid invoices for goods and services in which only 42 per cent of the budgeted amount had been spent.

 

Rural Development:

Programme 3 was allocated an amount of R901.8 million for the 2011/12 financial year out of which R390.4 million (or 43.3 per cent) had been spent by the end of the third quarter. The Department had projected to spend R676 million ( or 75 per cent) at the end of the same period. An under expenditure of R285.6 million (or 31.7 per cent) had therefore been recorded and the reason was as follows:

 

· Delays in rolling out the comprehensive rural development strategy which has led to slow spending on both goods and services and compensation of employees.

 

Restitution:

Programme 4 was allocated an amount of R2.4 billion for the 2011/12 financial year. At the end of the third quarter, the Department had only spent R890.8 million (or 35.6 per cent) of the allocation. The Department had projected to spend R1.9 billion (or 75 per cent) which means that it had under spent by R1.1 billion (or 39.4 per cent). The under-expenditure was as a result of delays in finalising Land Restitution claims.

 

In terms of economic classifications, the under-expenditure on current payments was due to funded vacant posts not being filled, whilst the under-expenditure on transfers and subsidies was as a result of delays in the settlement of land restitution claims. As at the end of the third quarter, the Department stood at 7 per cent of Land Restitution which has been achieved to date since 1996.

 

The Committee expressed concern that the Department received a qualified audit opinion for the 2010/11 financial year from the Auditor-General of South Africa (AG) due to the incompleteness of assets registers. Concern was expressed at the following expenditures that the Department had incurred:

· Fruitless expenditure amounting to R73.4 million; and

· Irregular expenditure amounting to R46.2 million (which included R11.9 million unauthorised expenditure related to supply chain management).

 

The Committee expressed concern at the slow progress on the land restitution process and stated that it was indicative of poor planning and poor utilisation of resources which needed urgent attention from the Department. The Committee expressed concerns that, to date, the Department could not quantify the number of outstanding claims in monetary value. This matter had the potential to hamper the provision of intended services and meeting the objectives of government in general. The Committee raised concerns that the slow progress in the land restitution process would impact negatively on reaching the 30 per cent target of land redistribution by 2014.

 

The Department reported that 8 770 outstanding land claims have been registered in respect of the Restitution Programme . However, a monetary value could not be placed on those outstanding claims as yet since the validation process of some claims was still in progress. In respect of vacancies, the Department reported that a number of senior vacancies have been filled and that the vacancy rate was less than 10 per cent. The Committee requested the Department to furnish it with a report on the outstanding land claims, inclusive of a breakdown of the following: claims per province, the number of claims that have been validated, the monetary value of the already validated claims, and the date for the completion of the entire validation process. The requested report also needed to provide a breakdown of how many of the claims received were realistic and not realistic and how many could be executed at the moment.

 

3.2 Department of Correctional Services

 

The Department of Correctional Services (the Department) was allocated a total amount of R16.6 billion for the 2011/12 financial year. At the end of the third quarter, the Department has spent R11.4 billion (or 68.3 per cent). The Department had projected to spend R12.3 billion (or 74.3 per cent) at the end of the third quarter resulting in an under-expenditure of R9 million (or 5.4 per cent). This slow spending occurred as a result of the lack of spending on a number of programmes which are discussed in the following section.

 

3.2.1 Expenditure per programme

 

The Department’s budget consisted of seven programmes, i.e. Administration, Security, Corrections, Care, Development, Social Integration and Facilities. The programmes that contributed to the Department’s under-expenditure are explained in details hereunder.

 

Administration:

Programme 1 was allocated an amount of R4.6 billion for the 2011/12 financial year. At the end of the third quarter, the Department had spent R3.1 billion (or 68.3 per cent). The Department had projected to spend at least R3.3 billion (or 73.3 per cent) of the budget allocation during the period under review. This resulted in an under expenditure of R2 million (or 4.3 per cent). This under expenditure was identified under compensation of employees which was as a result of delays in filling funded vacant posts. Furthermore, an amount of R5.4 million had not yet been transferred to Safety and Security Sector Education and Training Authority (SSSETA).

 

In respect of capital expenditure (CAPEX), only R28.9 million (or 36.9 per cent) had been spent out of an allocated amount of R78.3 million at the end of the third quarter of the 2011/12 financial year.

 

Care:

Programme 4 was allocated an amount of R1.8 billion for the 2011/12 financial year. At the end of the third quarter the Department had spent R1.2 billion (or 66 per cent). The department had projected to spend R1.4 billion (or 75.1 per cent) resulting in an under expenditure of R2 million (or 9.1 per cent). The under-expenditure was identified under goods and services as well as compensation of employees with the main reason for the latter also being the unfilled funded vacant posts.

 

With regard to CAPEX, only 37.8 per cent out of the allocated R4.7 million has been spent at the end of the period under review.

 

Development:

Programme 5 was allocated an amount of R575.4 million for the 2011/12 financial year. At the end of the third quarter, the Department had spent R373 million (or 64.8 per cent). The Department had projected to spend R424 million (or 73.7 per cent) resulting in an under expenditure of R51 million (or 8.9 per cent). This was due to the lack of spending on goods and services, compensation of employees and transfers and subsidies. Under goods and services, only R118.4 million (or 56.4 per cent) has been spent out of the allocated amount of R209.9 million. In respect of transfers and subsidies, only 40.8 per cent (or R267 000) was spent from an allocation of R654 000 at the end of the third quarter of the 2011/12 financial year.

 

Facilities:

Programme 7 was allocated an amount of R1.9 billion for the 2011/12 financial year. At the end of the third quarter, the Department had spent R1.1 billion (or 57.8 per cent). The Department had projected to spend R1.4 billion (or 74.7 per cent) by the end of the third quarter which resulted in an under expenditure of R3 million (or 18.4 per cent). This was due to the lack of spending in the following areas:

 

· Goods and services (69 per cent, or R545 000, out of R780 thousand);

· Transfers and subsidies (22.9 per cent, or R504 000, out of R2.1 million);

· Repairs and maintenance of correctional and other facilities (28.0 per cent, or R17.3 million, out of R62 million); and

· Upgrading, rehabilitation and refurbishment of correctional facilities (38.4 per cent, or R348.5 million, out of R906.3 million.

 

The under-expenditure in respect of upgrading, rehabilitation and refurbishment of correctional facilities was reported to be due to the delays in billing by the Department of Public Works. Concerns were expressed at the lack of cooperation between the departments of Correctional Services and Public Works. A point was made that a concerted effort needed to be made by the Department to address this matter with the Department of Public Works.

 

In terms of economic classifications, goods and services and compensation of employees had been identified as major areas where slow spending occurred. The lowest spending across programmes occurred in CAPEX. This could result in requests for roll-overs or a spike in expenditure towards the end of the 2011/12 financial year. The lack of spending on compensation of employees as a result unfilled vacancies remained a concern because the Department was required to ensure that it had enough capacity to deliver on its strategic objectives. It was reported that, in the Department’s Information Communication and Technology (ICT) Division, only one person had been employed to serve the rest of the Department. The Committee expressed concern at the fact that one person was serving the entire Department’s ICT Division. The lack of spending on CAPEX was as a result of delays in implementing capital projects which hindered the progress on job creation as a priority of government. Most of the 5 million jobs which had to be created by 2020 were expected to be created through capital projects.

 

The Committee expressed concern at the fact that the Department received a qualified audit opinion with findings due to the following:

· Non-functionality of internal auditors as a result of lack of resources;

· Non-compliance with the normal supply chain management procedures (inventory procurement);

· Awards were made to suppliers which were connected to officials of the Department;

· About 4 suppliers were awarded contracts without declaring their interests;

· About 4 officials were also connected to the same suppliers; and

· The prospective supplier’s list was not updated on a regular basis.

 

The Auditor-General indicated that the strategic plan of the Department was not in line with the Framework for Management of Programme Performance Indicators (FMPPI). The reasons for these were as follows:

 

· Systems to capture information and report were inadequate and computer systems were not well maintained;

· There was poor filling or no filling at all; and

· Officials were not trained to handle performance information and there was a lack of reviews and monitoring of performance.

 

The Committee expressed concern at the fact that 7 investigations were underway within the Department and 5 of these investigations were related to fraud and 2 of these investigations were related to non-compliance with the supply chain management procedures. The Department had also reported a fruitless expenditure of R628 000 and irregular expenditure of R944 000. An amount of R3.3 million was reported on material losses at the end of the 2010/11 financial year.

 

3.3 Department of Cooperative Governance and Traditional Affairs

 

The Department of Cooperative Governance and Traditional Affairs (the Department) was allocated a total amount of R48.2 billion for the 2011/12 financial year. At the end of the third quarter, the Department had spent R31.6 billion (or 65.6 per cent) of the allocated budget.

 

3.3.1 Expenditure per programme

 

The Department’s budget comprised of the following seven programmes: Administration; Policy, Research and Knowledge Management; Governance and Intergovernmental Relations; Disaster Response Management; Provincial and Municipal Government Systems; Infrastructure and Economic Development; and Traditional Affairs. The programmes which have not performed well are discussed in more detail here under.

 

Governance and Intergovernmental Relations:

Programme 3 is a critical programme as it relates to the transfer of the Municipal Infrastructure Grant (MIG) funds , and it had a budget of R34.5 billion thereby accounting for 71.5 per cent of the Department’s budget. An amount of R23.4 billion (or 68 per cent) had been spent at the third quarter of the 2011/12 financial year mainly due to the non-transferral of the MIG and the late submission of invoices for the Special Investigating Unit (SIU).

 

Disaster Response Management:

Programme 4 had a budget allocation of R41.2 million and, out of this, an amount of R22.9 million (or 55.6 per cent) had been spent at the end of the period under review. This resulted in an under expenditure of R19.3 million (or 44.4 per cent). The reasons for the under-expenditure were as follows:

· The allocation for immediate disaster relief in provinces and municipalities, which was yet to be used; and

· Delays in the appointment of the Head of Disaster Response Unit.

 

Infrastructure and Economic Development:

Programme 6 had a budget allocation of R12.3 billion thereby accounting for 25.6 per cent of the Department’s budget. An amount of R7.7 billion or 62.5 per cent had been spent under this programme at the end of the period under review. The reasons for the under expenditure were as follows:

· Delays in the establishment of cooperatives in Kwazulu-Natal and the Eastern Cape ; and

· Delays in the finalisation of the feasibility study for the establishment of business forum.

 

Concerns were expressed that the Department regressed from an unqualified audit opinion in the 2009/10 financial year with findings on predetermined objectives to a qualified audit opinion in the 2010/11 financial year. The Committee expressed concerns at the fact that this Department was the custodian of the Operation Clean Audit campaign, yet it has regressed in that regard due to the following:

· Incomplete disclosure in the financial statements relating to irregular expenditure incurred;

· Failure to maintain a proper record keeping system;

· Lack of monitoring compliance with laws and regulations in relation to the National Treasury’s Regulations;

· Contravention of the Supply Chain Management (SCM) Regulations; and

· Lack of control processes regarding the adherence to SCM processes and a lack of systems in place to detect irregular expenditure.

 

There were about 5 investigations related to SCM irregularities and 1 related to fraud. All 6 investigations commenced in March 2011.

 

Concerns were further expressed on the following :

· R271.2 million in irregular expenditure related to supply chain management;

· R148.3 million irregular expenditure on other areas; and

· R336.5 million in fruitless and wasteful.

 

In terms of economic classifications, there was slow spending on transfers and subsidies of 65.8 per cent (or R31.2 billion) against an available budget of R47.5 billion by the end of the third quarter of the 2011/12 financial year. This was a cause for concern given that transfers and subsidies accounted for more than 98 per cent of the Department’s budget. The MIG was the main reason for the non-transferral of payments and it was reported that this was due to the bank account verification process initiated by the Department following suspicions of fraud.

 

In terms of the Local Government Equitable Share (LGES), it was reported that the Department opted to withhold transfers as a result of municipalities’ failure to surrender unspent budgets in the 2009/10 financial year.

 

The Committee expressed a concern at the delay of the payment of the gratuity to non-returning Local Government Councillors. An amount of R266.3 million had been transferred to the Department in that regard. The Department reported that only Councillors who have finished their five year term in May 2011 would benefit from the fund. Challenges were experienced in respect of tax clearances and the verification of bank details of benefiting ex-councillors but these matters were in the process of being addressed.

 

In respect of the Municipal Disaster Relief Grant, a concern was expressed at the under-expenditure in that regard and it was stated that there was a lack of co-ordination between the departments, especially Human Settlements and Cooperative Governance. A point was made that 0 per cent out of an amount of R775 million had been transferred to municipalities at the end of the period under review yet there were areas that needed rehabilitation from disasters since the year 2009.

 

Furthermore, concerns were raised in respect of the performance of the Community Works Programme and clarity was sought on how much money was actually going to communities given the perceived high percentages that go to consultants.

 

3.4 Department of Water Affairs

 

For the 2011/12 financial year, the Department of Water Affairs (the Department) was allocated R9 billion after adjustments. At the end of the third quarter, the Department has spend R4.2 billion (or 46.8 per cent). The Department had projected to spend R6.7 billion (or 75 per cent) at the end of the third quarter. Therefore, the Department has under spent by R2.5 billion (or 28.1 per cent) at the end of the third quarter. This slow spending occurred as result of lack of spending on a number of programmes which would be discussed in the following section.

 

3.4.1 Expenditure per programme

 

The Department’s budget comprised of six programmes, i.e. Administration, Water Sector Management, Water Infrastructure Management, Regional Implementation and Support, Water Sector Regulation, and International Water Cooperation. The programmes which have not performed well would be discussed in more detail here under.

 

Administration:

Programme 1 was allocated R869 million for the 2011/12 financial year. At the end of the third quarter R540.9 million (or 62.2 per cent) was spent. The Department had projected to spend R651.7 million (or 75.0 per cent) by the end of the third quarter amounting to an under expenditure of R110.8 million (or 12.8 per cent). The reasons for the under expenditure were as follows:

· Late submission of invoices by the Department of Public Works (DPW) and the State Information Technology Agency (SITA) in respect of office accommodation and Information Technology (IT) services;

· Delays in filling vacant posts of senior management; and

· Delays in the transfer of bursaries to non-employees of the Water and Forestry Academy .

 

The Department has only spent 56.6 per cent of the R11.9 million. The under-expenditure was also due to the lack of spending on CAPEX were only 29.3 per cent of R38.1 million was spent in this regard.

 

Water Sector:

Programme 2 was allocated R882.1 million for the 2011/12 financial year. At the end of the third quarter only R326.6 million or 37.0 per cent was spent. The Department had projected to spend R661.6 million or 75.0 per cent at the end of the third quarter amounting to an under expenditure of R334.9 or 38.0 per cent. The reasons for the under expenditure were as follows:

· Delays in submitting invoices for Water Eco-System and maintenance and support systems;

· Delays in updating the National Water Resources; and

· Delays in the construction of flow gauging stations.

 

The high vacancy rate remained a challenge in this programme which also contributed to under-expenditure. This was due to the fact that the Department was unable to attract certain critical skills related to engineering and science. Under compensation of employees, only 32 per cent out of an allocated R759.1 million had been spent at the end of the third quarter. In respect of goods and services only 24.1 per cent of R554.0 million had been spent at the end of the third quarter.

 

An amount of R22.1 million allocated for financial assistance to small scale farmers for the water subsidy was not spent; instead this amount has been shifted to programme 4 for operating subsidy for emerging farmers. The Department only spent 54.1 per cent of R48.9 million allocated for CAPEX as at the end of the third quarter.

 

Water Infrastructure Management:

Programme 3 was allocated an amount of R2.6 billion for the 2011/12 financial year from which only R803.1 million (or 33.7 per cent) was spent at the end of the third quarter. The Department had projected to spend R1.7 billion (or 75.0 per cent) at the end of the third quarter which resulted in an under expenditure of R985.7 million (or 41.3 per cent). This under-expenditure was due to the outstanding invoices for the September to December 2011 period.

 

Under transfers and subsidies only 33.6 per cent of R2.3 billion had been spent at the end of third quarter. This was due to the slow spending on infrastructure development as well as construction and maintenance by the Water Trading Entity. The Water Trading Entity had not yet submitted all invoices for the work done on infrastructure projects.

 

Regional Implementation and Support:

Programme 4 was allocated an amount of R4.7 billion and spent R2.4 billion (or 52.2 per cent) at the end of the third quarter of the 2011/12 financial year. The Department had under spent by R2.2 billion or 47.8 per cent at the end of the period under review. The reported under expenditure was due to the following reasons:

· Delays in the submission of invoices from contractors and implementing agencies;

· Delays in the implementation of certain projects due to lack of capacity and experience of key programmes such as Regional Bulk Infrastructure Grant, Accelerated Infrastructure River Health and Rain Water Harvesting Tanks. The long design and the lengthy tender processes that needed to be followed before construction could commence was a contributing factor ;

· Incorrect banking details provided by Municipalities which delayed the transfer of payments;

· Capacity constraints due to the delays in filling Occupation Specific Dispensation (OSD) posts; and

· Inadequate office accommodation in North West and Gauteng Regional Offices to accommodate newly recruited officials.

 

Concerns were expressed at the delays in the aforementioned programmes since these programmes provided water to poor communities and could be a catalyst for job creation. The Committee noted that the Department did not have adequate procurement structures in place. Concerns were expressed at the fact that under the Regional Bulk Infrastructure programme, only R1.9 million (or 10.3 per cent) was spent out of an allocated amount of R18.5 million.

 

Water Sector Regulation:

Programme 5 was allocated an amount of R112.3 million of which R63.6 million (or 56.7 per cent) was spent at the end of the third quarter. The Department had projected to spend about R84.2 million (or 75.0 per cent) during the same period resulting in an under expenditure of R20.6 million (or 18.3 per cent). The reasons for the under expenditure were as follows:

· Unfilled funded OSD vacant posts;

· Late submission of invoices; and

· Delays in the implementation of the following projects, Water Services Economic Regulation, Waste Discharge Charge System, and Economic Regulator as a result of lack of capacity by service providers.

 

The under expenditure was also due to the lack of spending on the following allocations:

 

· An amount of R118.2 million was allocated for job creation through Working for Water programme and 0 per cent was spent;

· An amount of R60.8 million was allocated for job creation through Working for Fire programme and 0 per cent was spent; and

· An amount of R48.8 million was allocated for Regulation Branch for expansion and strengthening of the regulatory function, only R12.3 million or 25.2 per cent has been spent.

 

The Committee expressed concerns that this programme was meant for job creation and the eradication of poverty and expressed concern at the slow expenditure thereon, especially in respect of the Working for Water and Fire programmes under which 0 percent had been spent.

 

International Water Cooperation:

Programme 6 was allocated an amount of R26.1 million for the 2011/12 financial year. At the end of the third quarter the Department has spent R13.9 million (or 53.2 per cent). The department had projected to spend R19.5 million (or 75.0 per cent) at the end of the third quarter.

 

The reasons for the under expenditure were as follows:

 

· The non-alignment of the International Relations Structure to the function; and

· Most vacancies not being filled due to internal dynamics and postponements of the filling of vacancies.

 

Concerns were raised at the fact that the Department received a qualified audit opinion in the 2010/11 financial year from the AG which was unchanged from the previous year due to the non-compliance with laws and regulations as well as findings on predetermined objectives. Part of this was an unfair and uncompetitive procurement process, which included:

 

· Thirteen procurements which were done from suppliers without South African Revenue Services (SARS) tax clearance certificates;

· Twenty-one procurements were done without a three quotations process; and

· Fourteen contractors were procured who did not declare their interests.

 

The other challenges included the following:

 

· A high level of instability and dismissals;

· Inadequacy of the Department’s structure to achieve its mandate;

· lack of skills or capacity, current controls and reporting systems;

· Inadequacy of the IT networks;

· Lack of proper record keeping supporting the financial reporting; and

· Ineffective functioning of the Department’s Audit Committee.

 

The Department incurred irregular expenditure to the amount of R38.5 million, R469 000 on the compensation of employees and R37.8 million on other areas. The total irregular expenditure amounted to R76.8 million which excludes the wasteful and fruitless expenditure of R8.2 million was incurred in the same period.

 

3.5 Department of Women, Children and People with Disabilities

 

The Department of Women, Children and People with Disabilities (the Department) was allocated an amount of R143.1 million for the 2011/12 financial year. At the end of the third quarter the department has spent R113.7 million (or 79 per cent) of the allocation. The Department had projected to spend R110.1 million (or 76.95 per cent) at the end of the third quarter resulting in an over expenditure of R3.5 million (or 2.5 per cent). This over spending occurred as result of lack of spending on a number of programmes which would be discussed in the following section.

 

3.5.1 Expenditure per programme

 

The Department’s budget comprised of four programmes, i.e. Administration; Women Empowerment and Gender Equality, Children’s Rights and Responsibilities, and Rights for People with Disabilities. The programmes which have not performed well would be discussed in more detail here under.

 

Administration:

Programme 1 was allocated an amount of R42.8 million for the 2011/12 financial year. At the end of the third quarter the Department had spent R46.1 million (or 107.8 per cent) of the budget. An amount of R17.9 million was allocated towards compensation of employees out of which R20.1 million (or 112.5 per cent) has been spent. Under goods and services an amount of R17.9 million has been allocated and R19.2 million (or 108.7 per cent) has been spent during the period under review. The Department had spent its entire budgetary allocation for this programme within nine months. Of note is that this programme has exceeded its spending by R15.4 million for the first nine months.

 

The reasons for this were as follows:

 

· The department employed staff at the higher notches than the approved notched by the Department of Public Service (DPSA); and

· Some staff members were employed outside the approved organogram of the Department.

 

The Committee expressed concern at the expenditure related to Compensation of Employees to which the National Treasury responded that it was in the process of identifying the underlying reasons for the Department not spending within its approved budget and would make recommendations thereon. The Committee requested the National Treasury to furnish it with a timeframe for the conclusion of the afore-mentioned exercise. It was stated that there was a need for uniformity in respect of the Administration programme across all national departments. A point was made that this Department was under spending in the programmes related to its core mandates, yet the Administration programme’s budget had been exhausted before the fourth quarter of the 2011/12 financial year. This was a concern and a turnaround strategy was needed in that regard.

 

Children’s Rights and Responsibilities:

Programme 3 was allocated an amount of R10.1 million for the 2011/12 financial year. At the end of the third quarter, the Department has spent R9.9 million (or 97.9 per cent) which was R2.3 million (or 23 per cent) more than the required 75 per cent of expenditure at the end of the third quarter. The Department had projected to spend R7.6 million (or 75.2 per cent) at the end of the third quarter. This over-expenditure was as a result of a high level of spending on advertising and catering, even though the matter was reported under investigation, it remained a cause for concern.

 

Rights of People with Disabilities:

Even though the Department has reported over-expenditure in Programme 4, it is important to note that this programme has reported under-expenditure at the end of the third quarter. This programme was allocated R11.9 million for the 2011/12 financial year. At the end of the third quarter, the Department had spent R6.2 million (or 51.8 per cent). The Department had projected to spend at least R9.4 million (or 78.9 per cent) at the end of the same period. Therefore, the Department has underspent by R3.2 million (or 14.1 per cent). This was due to slow spending on compensation of employees as a result of vacant positions under this programme.

 

Women, Empowerment and Gender Equity:

Programme 2 was allocated an amount of R78.1 million for the 2011/12 financial year. At the end of the third quarter, the Department had only spent R51.3 million (or 65.7 per cent). The Department had projected to spend R62.3 million (or 79.8 per cent) at the end of the same period. The under expenditure was due to the lack of transfer payments which were supposed to be made to the Commission for Gender Equity (CGE).

 

Overall the reported over expenditure in terms of economic classifications was identified on compensation of employees, goods and services and CAPEX. For instance under programme 1, the Department had spent more than its allocation in the first nine months of the 2011/12 financial year. This was a cause for concern and the sustainability of the programme was therefore requiring attention. The spending by this Department would lead to the shifting of funds and virements and casted doubts over the credibility of the budget and, as such, defeated the primary objectives of the affected programmes.

 

The Department was one of the newly-established departments which received an unqualified audit opinion from the AG for the 2010/11 financial year with some findings on predetermined objectives and compliance with laws and regulations, which were as follows:

· Lack of preventative and detective measures of unauthorised and irregular expenditure;

· Procurement of goods from suppliers with no Tax Clearance Certificate; and

· Lack of audit committee structures.

 

Concerns were expressed at the following expenditures that were incurred by the Department:

· An unauthorised expenditure of R3.7 million which emanated from overspending;

· An irregular expenditure of R6.6 million of which R271 thousand was related to Supply Chain Management processes; and

· About 4 procurements were done from suppliers without Tax Clearance Certificates and one was done without inviting three quotations.

 

3.6 Department of Communications

 

The Department of Communications (the Department) was allocated an amount of R2 billion for the 2011/12 financial year. The Department’s third quarter expenditure projection for the 2011/12 financial year was R1.6 billion and the actual expenditure was R923.9 million. Based on its projection, the Department has under-spent by R676.1 million (or 42.3 per cent). This slow spending occurred as result of a lack of spending on a number of programmes which are discussed in the following section.

 

3.6.1 Expenditure per programme

 

The Department’s budget comprised of the following six programmes: Administration, Information Communication Technology, International Affairs and Trade, Information Communication Technology Policy Development, Information Communication Technology Enterprise Development, Information Communication Technology Infrastructure Development, and Presidential National Commission. Of these programmes, only two Administration, and Information Communications Technology International Affairs and Trade spent relatively well at 76.3 per cent and 73.2 per cent, respectively.

 

The only concern with Programme 2 was the recorded 0.08 per cent transfer of its allocated R3.7 million to non-profit institutions such as the New Partnership for Africa ’s Development E-Africa Commission (NEPAD e-Africa Commission) which expected a transfer of R3.5 million. The reason for the 0 per cent transfer was due to the non-submission of the necessary documentation by the NEPAD e-Africa Commission. This was a cause for concern given South Africa ’s continued endeavour to position itself as a strategic player in the overall development of the African region.

 

Information Communications Technology Enterprise Development: Programme 4 spent only 49.05 per cent or R686.4 million against an available budget of R1.4 billion. This was a cause for concern given that this was the first Departmental priority programme accounting for 70 percent of the Department’s budget. This Programme spent below 50 per cent across all economic classification except for payments for capital assets.

 

Transfers and subsidies virtually accounted for the entire budget of the programme with an allocation of R1.386 billion or 99 per cent of the programme’s budget. However, only R680.3 million or 49.07 per cent was transferred. The reasons for the slow expenditure were as follows:

· The changes in the Digital Terrestrial Television (DTT) standards which resulted to non- transfer to Sentech and Universal Service and Access Fund (USAF).

· The financial investigation that was underway at the USAF which affected the transferral of funds to the entity.

 

Information Communications Technology Infrastructure Development: Programme 5 was allocated an amount of R282 million for the 2011/12 financial year from which only R32.4 million or 11.5 per cent has been spent at the end of the third quarter. All these funds have been transferred.

 

Under Compensation of Employees an amount of R19.1 million or 59.1 per cent has been spent against a budget of R32.3 million. Under Goods and Services only R11.8 million or 5 per cent has been spent against a budgetary allocation of R247.2 million.

 

The challenges related to the implementation of the 112 Emergency Call Centre projects and broad band ICT remained. The Department made an undertaking that the 112 Emergency Call Centre project would be operational during the 2012/13 financial year. The main reason for the under expenditure under Goods and Services and the programme as a whole was delays in the tender processes.

 

In the 2010/11 financial year the Department improved from a qualified to an unqualified audit report from the AG with findings on compliance and predetermined objectives. The Department did however not monitor its spending on projects. This resulted in a significant under expenditure (59 per cent) on its budget which in turn resulted in the service delivery not being met. The other issues were as follows:

 

· Contravention of SCM regulations which resulted in irregular expenditure;

· High level of acting (leadership vacuum) mostly in the strategic leadership positions;

· Investigations related to fraud and other financial misconduct;

· Lack of compliance with legislation;

· Irregular expenditure of R2.8 million excluding wasteful or fruitless expenditure of R1.4 million. All these irregular expenditure are SCM related.

· Lack of governance with regard to risk management, internal audit and audit committee.

 

The expenditure of 46.13 per cent against an available budget of R2 billion, it could be stated that the Department of Communications was the worst performing Department of all the 38 national departments during the period under review. For three successive financial years (2009/10, 2010/11, 2011/12) the Department has spent below 70 per cent of its total adjusted budget in the third quarter. There was a declining trend which began from 62.5 per cent in 2009/10 to 45.1 per cent in 2010/11 until the recent 46.1 per cent.

 

With reference to the fact that transfer and subsidies were allocated the biggest proportion of the Department’s budget, the Committee expressed concern at the ability of the Department to exercise oversight over the transferred payments to entities. The Department recorded a slow expenditure with regard to this economic classification under which 48.4 per cent or R682.4 million has been transferred at the end of the third quarter against an available budget of R1.4 billion for the 2011/12 financial year. The performance of the Department would impact negatively on the ability of South Africa to catch up with the rest of the world in terms of Information Systems and Technology (ICT). The Department responded that it was in the process of developing a turnaround strategy to which the Committee requested that same be submitted to the National Assembly subsequent to it being signed by the Minister of Communications.

 

4. Summary of Findings

 

After deliberations with the Departments, the Standing Committee on Appropriations made the following findings:

 

4.1 The Department of Correctional Services had awarded tenders to companies that had affiliation with at least four officials employed by the Department. Investigations in that regard have since been finalised and one official was acquitted on the charges.

 

4.2 There was a lack of coordination between Departments, especially Human Settlements and Cooperative Governance and Traditional Affairs in dealing with disaster management.

 

4.3 The Department of Water Affairs has shifted an amount of R22.1 million allocated for financial assistance to small scale farmers for the water subsidy to programme 4 for operating subsidy for emerging farmers.

 

4.4 The Department of Water Affairs has spent 0 per cent under the Working for Water and Working for F ire programmes which had budgetary allocations of R118.2 million and R60.8 million respectively . This was a cause for concern given the fact that these programmes have been earmarked as catalysts for job creation and poverty alleviation.

 

4.5 The Department of Women, Children and People with Disabilities had overspent by an amount of R15.4 million under the Administration programme as a result of it employing staff outside the approved organogram and employing staff at higher notches than those approved by the Department of Public Service and Administration.

 

4.6 In respect of Compensation of Employees, The Department of Women, Children and People with Disabilities projected to overspend by R12 million at the end of the 2011/12 financial year.

 

4.7 The Transfers and Subsidies economic classification constituted 70 per cent of the entire budget of the Department of Communications, however only 48.4 per cent had been spent in that regard at the end of the third quarter of the 2011/12 financial year.

 

4. 8 The Committee observed that there was inconsistence regarding the outstanding land claims in the Department of Rural Development and Land Reform.

 

4.9 The Committee recognised that there was a tendency of the Departments to disregard or to shift around the projects that deals with job creation.

 

4.10 The Committee observed significant amounts of irregular expenditure as well as fruitless and wasteful expenditure reported in the following departments: Communications, Cooperative Governance and Traditional Affairs, Waters Affairs, and Correctional Services.

 

5. Recommendations

 

In light of the above-mentioned findings, the Standing Committee on Appropriations recommends as follows:

 

5.1 That the Minister of Correctional Services should ensure that the Department of Correctional Services submit a report on the state of investigations in respect of fraud committed by officials. This report should be inclusive of the amount of money involved and how it will be recovered in terms of the Public Finance Management Act (PFMA).

 

5.2 That the Minister of Cooperative Governance and Traditional Affairs should ensure that the Department of Cooperative Governance and Traditional Affairs submit a report to the National Assembly on the Community Works Programme.

 

5.3 That the Minister of Women, Children and People with Disabilities should ensure that the Department of Women, Children and People with Disabilities submit a turnaround strategy, in consultation with the National Treasury to the National Assembly.

 

5.4 That the Minister of Communications should ensure that the Department of Communications submit its turnaround strategy to the National Assembly subsequent to it being signed off.

 

5.5 That the Minister of Finance should ensure that the National Treasury ensure that funds allocated for job creation to the relevant Departments were used for that specific purpose for an example, the Work for Water and Work for Fire programmes.

 

6. Conclusion

 

The requested reports by the Standing Committee on Appropriations as per section 5 above should be submitted to the National Assembly within 90 days after the adoption of this Report by the House.

 

 

 

Report to be considered.