ATC140320: Report of the Select Committee on Finance on the 2013/14 Third Quarter Provincial Treasury Budgets and Expenditure, dated 19 March 2014

REPORT OF THE SELECT COMMITTEE ON FINANCE ON THE 2013/14 THIRD QUARTER PROVINCIAL TREASURY BUDGETS AND EXPENDITURE, DATED 19 MARCH 2014

1. I ntroduction and background

The Select Committee on Finance was established in terms of Section 4 (1) of the Money Bills Amendment Procedure and Related Matters Act, No. 9 of 2009. In terms of Section 4 (2) of this Act, the Committee has powers and functions conferred to it by the Constitution, legislation, the standing rules or a resolution of a House, that include considering and reporting on the national macro-economic and fiscal policy; amendments to the fiscal framework and revenue proposals and Bills; actual revenue published by the National Treasury; and any other related matter set out in this Act.

The mandate of the Committee further strengthens the Committee’s function to legislate, conduct oversight over the Executive actions; facilitate public participation, facilitate international agreements and review matters of public interest in relation to the National Treasury and its entities, and the South African Reserve Bank.

The Public Finance Management Act (section 18 (1) (a, b) and section 18 (2) (e and g) requires that the provincial treasuries must amongst other things, exercise control over the implementation of the provincial budget; promote and enforce transparency and effective management in respect of revenue, expenditure, assets and liabilities of provincial departments and provincial public entities and may assist the provincial departments and entities in building capacity for efficient, effective and transparent financial management and must intervene by taking appropriate steps, which may include the withholding of funds, to address a serious or persistent material breach of this Act by a department or entity.

The Committee through its Strategic Plan took a decision to regularly engage the provincial treasuries as part of its key priority areas. The Committee continues to interact with provincial treasuries to ensure financial sustainability and enhance its oversight role.

During the third quarter of 2013/14, the Committee had engagements with the Members of the Executive Council (MECs) of Finance from the Eastern Cape, Northern Cape, North West, Western Cape, Gauteng, Mpumalanga, and Free State Provinces and the National Treasury. The public hearings were held on 4, 11 and 20 February 2014, in Parliament. The Report captures the presentations made by the National and Provincial Treasuries on the status of finances and expenditure as at the third quarter of 2013/14. These presentations largely cover the provincial revenue composition; quarterly expenditure review, challenges encountered in implementing the provincial budgets and measures to mitigate risks identified. The Report then summarises the observations and findings made by the Committee and makes recommendations.

2. Briefing by the National Treasury

2.1 Overview of third quarter provincial budgets and expenditure

Table 1 below shows that the total adjusted budget allocated to provinces in 2013/14 amounted to R430 billion. On aggregate, the provinces adjusted the allocated budgets by a total of R9.879 billion in 2013/14. Gauteng, Eastern Cape, North West and KwaZulu-Natal provinces increased the initial budgets allocated by R3.204 billion, R1.843 billion R1.355 and R1.056 billion, respectively.

At the end of the third quarter of the financial year 2013/14, the provinces had spent R314.163 billion or 73 per cent of the proportion of total adjusted provincial budgets. On average, the provinces are projecting to overspend their adjusted budgets by R3.555 billion by the end of the financial year. Gauteng and Free State provinces project to overspend by R1.56 billion (2 per cent of adjusted budget) and R1.33 billion (5 per cent of adjusted budget), respectively. On the contrary, the Eastern Cape, Limpopo and Western Cape expect to under-spend by a total of R672 600 million.

As reported by the National Treasury, provincial expenditure largely comprises of compensation of employees (61 per cent), goods and services (20 per cent), transfers and subsidies (12 per cent) and capital expenditure (7 per cent).

Table 1: Provincial aggregated budgets and expenditure as at 31 December 2013

Source: National Treasury

The top six items under goods and services are medicine, contractors, property payments, agency and support or outsourced services, medical supplies, laboratory services and Learner Teacher Support Material.

At the end of the third quarter of 2013/14 financial year, the provinces in general were in a healthier in year fiscal position. None of the provinces utilised overdraft facilities at the Exchequer level. Mpumalanga Province continued to have higher balances at the Pay Master General (PMG) level than at the Provincial Revenue Fund (PRF) level. The Exchequer balances in the Free State Province were extremely low.

The National Treasury assessed the trend of provincial projections from 2009/10 financial year and had come to the conclusion that these projections are not credible. The general trend is that, during the financial year, the provinces project to overspend but at the end of the financial year, the outcomes show under-spending. Provinces had planned to implement cost containment measures, conduct headcount verifications and roll out of biometric controls and consolidate of Supply Chain Management (SCM) reforms.

2.2 Summary of Provincial Issues Identified by the National Treasury

Eastern Cape

At the end of the third quarter of 2013/14, the Eastern Cape Province had spent R44.1 billion (or 71.8 per cent) of its adjusted budget and was likely to come within budget at the end of the financial year. The bulk of projected spending (R436.2 million) was located in the Department of Human Settlements. The Province expected to under-spend its 2013/14 budget by R65.4 million in compensation of employees and R226.9 million in respect of goods and services. These projections were primarily due to continued teaching staff challenges in the Department of Education including the carrying of additional educators as well as human resource accruals paid during the year and the LTSM budget in Public Ordinary Schools. The Province had spent 55.4 per cent of the 2014 adjusted budget on payments for capital assets, with a projected of R164.9 million. The bulk of the under-spending was located in the Department of Education (buildings and other fixed structures) and the Department of Health (machinery and equipment).

Northern Cape

The departments of Health and Education in the Northern Cape Province were experiencing budget pressures largely due to the filling of unfunded posts, most of which were in the administration programme. The National Treasury reported that the main priority for these departments was to address the recruitment practices and that the Accounting Officers must be held accountable to specific targets. For the Kimberley Hospital, the Province was expected to review its financial planning for this facility.

Some public entities in the Province carry out the same function as the Department of Economic Development e.g. Northern Cape Economic Development Agency. The National Treasury highlighted that the Department of Economic Development’s monitoring and oversight over these entities were poor and unstructured.

North West

The North West Province continued to under-spend in most departments, particularly non-social sector departments. These departments only spent approximately 65 per cent of the adjusted budget at the end of the third quarter of 2013/14. The Department of Public Works is the preferred implementing agent in the Province but had been ineffective. As a result, poor performance of contractors and delays in implementing key infrastructure projects had been experienced. Poor planning and budgeting for maintenance of infrastructure continued to be a challenge.

The National Treasury reported that key cost drivers in the departments are inadequately managed, particularly in the Department of Health. The Department continued filling posts despite the funding pressure under the compensation of employees’ budget and this may pose risks under the sector’s budget. The Province needed to improve the monitoring and oversight over the activities of the public entities.

Free State

The Free State Province projected overspending on compensation of employees in the Department of Education. The National Treasury emphasised that the Province must realign its spending plans in line with the demographic trends reflected in the latest Census. A number of decisions in the Province needed to be better assessed and better costed , for example, awarding of bursaries to additional students; p rovincial -specific initiatives within the Roads and Agriculture sectors; in-sourcing of contract staff; a ppointment of additional Cuban doctors and the development of a strategy for funding the Macufe festival.

Accruals (unpaid invoices) in the Province had grown from R43 million to R257 million in the last four years. Recently, the Province had taken steps to deal with officials involved in incurring irregular expenditure and financial misconduct, particularly in the departments of Roads and Human Settlements.

Gauteng

The Gauteng Province was projecting to overspend its 2013/14 adjusted budget by R1.568 million. The pressure in the Department of Education was on compensation of employees and related mainly to the appointment of new teachers to accommodate the growth in the number of learners. The Department of Education was planning to appoint 1 054 teachers in 2014 but these posts were not funded. National Treasury had made additional funding (R9.6 billion in 2013 Medium Term Expenditure Framework) available to the Province in line with the demographic trends highlighted in Census 2011.

Spending pressures in the Department of Health were mainly in medicine, medical supplies and property payments. The operationalisation of the new Zola and Natalspruit Hospitals also contributed to the pressures and that signaled the lack of life-cycle costing to assess affordability before the decision to construct a new facility was taken. The National Treasury emphasised that the Province should carefully monitor and support the implementation of the Infrastructure Delivery Management System (IDMS), as this initiative was designed to remedy these challenges.

Mpumalanga

The preliminary numbers showed that, by the end of the third quarter of 2013/14 financial year, the Mpumalanga Province had spent R25.4 million or 75 per cent of the adjusted budget of R34 185 million and projecting a pressure of R764.9 million mainly in the departments of Health, Education and the Office of the Premier. The Province had projected over-expenditure on core items such as LTSM and medicine and medical supplies. The National Treasury highlighted that while the departments might be able to absorb the current pressures, poor planning and budgeting for these items needed to be addressed while also addressing inefficiencies.

The Province was struggling to fill senior and specialised positions and consequently under-spent on compensation of employees. There was a need for the Province to ensure alignment between spending and performance, particularly in the Department of Health with respect to HIV and infrastructure delivery. There was evidence of waste and inefficiency in certain areas.

Western Cape

At the third quarter of 2013/14, the Western Cape Province was not reflecting any material overspending risks. A well-developed personnel management strategy enables the Province to accurately budget for compensation of employees. The Province maintained control over the compensation budget and reflected a credible provincial budget.

The Province needed increased focus on funding the Department of Education in respect of teacher numbers, facilities and LTSM to address some of the in-migration pressures. The goods and services budget in the Department of Health compromised transparency as well as the analysis that could be executed.

A Corporate Governance Review and Outlook was introduced to improve overall governance and to achieve improved audit outcomes. In the 2012/13 financial year, five departments received clean reports and nine departments received unqualified with matters; there were no qualifications. The Province is well on its way to realise efficiency savings by minimising spending on non-core spending items.

The National Treasury had indicated that the social challenges in the Province such as gangsterism and drug abuse are major obstacles to a safe environment. The challenge for the provincial government was whether current allocations were sufficient to address this challenge. The Province had indicated that management and co-ordination issues will be addressed first before finalising the social development funding issues.

KwaZulu-Natal

Total provincial spending in KwaZulu-Natal was on track at the end of the third quarter, at 75.8 per cent, with projected pressures amounting to R563.5 million. There was a need to improve the management of personnel in the Department of Education. Compensation of employees’ pressures amounted to R427 million as 435 more people were employed between October and December 2013. The Headcount exercise instituted by the Provincial Treasury was in the last phase and was expected to assist in understanding the extent of the problem in the Department.

The Department of Health projected over-expenditure in respect of medicines, mainly antiretrovirals . There was also a high spending on litigation costs (medico-legal claims), which stood at R80.6 million. The Department of Economic Development also contributed to the spending pressures by R113 million, mainly from the hosting of events. The Department of Arts and Culture projected to over-spend due to hosting of various unfunded events such as the Africa Day Celebration and the KZN youth wind band (trip to China). This Department was instructed by the Provincial Treasury to absorb these pressures within its budget through cost-cutting.

National Treasury reported that it was important for the Province to rationalise entities which were doing similar work, such as the Growth Fund, Small Business Development Agency and Ithala Development Finance Corporation, all of which support the businesses in the Province . All these entities relied on government funding and were not able to sustain themselves. The Province transferred about R1.2 billion per year to its entities, and this was the highest amount in the country.

3. Briefing by the Provincial Treasuries

3.1 Eastern Cape

The Province reported that 100 per cent of the equitable share was received from national government. Of the conditional grants, R3.4 million in respect of the Social Sector and Public Works Expanded Public Works Programme (EPWP) incentive grants were not received because the departments did not submit the necessary quarterly reports on time. The Province over-collected own revenue amounting to R181.9 million, mainly due to interest earned resulting from the slow spending departments, sale of old machinery, patient fees, sale of biological assets to commercial farmers and motor vehicle licence fees.

Overall, the Province spent R44.1 billion or 71.8 per cent of its adjusted budget of R61.375 billion, with the projected under-expenditure of R435.8 million. The Department of Human Settlements projected to under- spend its adjusted budget by R149.7 million due to poor performance by contractors, contractor cash flow problems, poor planning as well as poor project implementation and management. The Department of Health expected to under-spend by R121 million as a result of delays in the filling of prioritised vacant posts, payment of the newly recruited Community Health Care Workers, slow payment of human resource accruals and non-payment of PMDS.

The Department of Local Government and Traditional Affairs was likely to under-spend its adjusted budget by R52.8 million. The Department intended to surrender R40 million to the Provincial Revenue Fund, a transfer to the King Sabata Dalindyebo Local Municipality that was meant to finalise municipal projects.

The Department of Transport projected to under-spend by R36.7 million mainly due to delays in the submission of Proof of Delivery forms for scholar transport as well as savings received from traffic officers not working overtime as planned. The Department of Roads and Public Works expected to under-spend by R22.1 million in respect of compensation of employees, following delays in the implementation of the annual recruitment plan. The Department of Sport, Recreation, Arts and Culture projected R245 million due to delays in the transfers to the Buffalo City Metropolitan Municipality for library services.

The Province projected to over-spend by R65.7 million in respect of compensation of employees . This is attributed to a budget shortfall of R236.9 million in the Department of Education. The shortfall was caused by the payment of accruals in respect of temporary educators, substitute educators staff and promotional posts. The Province expected to under-spend the goods and services budget by R230.1 million. Of this amount, the Department of Education would contribute R131.2 million given the delays in the procurement processes for the school furniture.

The departments of Education, Roads and Public Works and Human Settlements are generally underperforming in infrastructure spending in the 2013/14 financial year and Treasury has engaged these departments to determine the blockages. Given the capacity challenges in some of the departments, particularly on infrastructure spending, the under-expenditure will likely be more than projected. The Province is still continuing to experience poor planning in infrastructure delivery.

The Infrastructure Delivery Management System (IDMS) had been rolled out to the departments of Education and Health and this process should assist these departments in improving its planning. The small contractor development programme does not seem to yield the desired results and therefore will have to be strengthened. Adherence to the 30 day payment process is assisting in addressing the contractor cash flow problems. Poor project management had been addressed by improving the capacity.

3.2 Northern Cape

The Province had collected own revenue amounting to R207.8 million or 83 per cent of the adjusted budget of R250.7 million , this represent a projected over-collection of R19.8 million or 7.9 per cent . Actual expenditure on conditional grants amounted to R2.4 billion or 68 per cent of the adjusted budget of R3.6 billion , resulting in a projected net under-spending of R167.2 million , mainly as a result of the Comprehensive Agriculture Support Programme (CASP) and Health Infrastructure Grants.

Total actual expenditure for the Province amounted to R9.57 billion or 74.2 per cent of the adjusted budget of R12.897 billion . The Province projected to over-spend by a net amount of R77.4 million or 0.6 per cent at the end of the 2013/14 financial year. It was expected that the additional amount provided for the Roads Maintenance Grant will significantly reduce this unde - spending.

Expenditure on compensation of employees stood at R5.1 billion or 74.3 per cent of the total budget R6.8 billion . The Province projected over-expenditure of R7.1 million or 0.1 per cent , of which the Departments of Health and Education projects would over-spend by R20 million and R10.6 million, respectively. O ver -expenditure in the Department of Education relates to additional LTSM that was procured as a result of the increase in learner numbers.

The medico-legal cases (litigation account to almost R20 million ) as well as compensation of employees without a budget would lead to over-spending in the Department of Health. The Department established an Emergency Medical Services college which was operating without a budget.

3.3 North West

Provincial own revenue collected amounted to R656.5 million or 79.9 per cent of the initial budget. An over-collection of R38.9 million in own revenue was projected.

As at the 31 December 2013, the aggregate provincial spending stood at 73.5 per cent, conditional grants at 73.75 per cent and 51.6 per cent of infrastructure budget had been spent. The Province projected overspending of R213 million mainly relating to the departments of Health and Education and Training in respect of compensation of employees. In order to remain within budget, the provincial departments were requested to review their spending trends, determine their ability to spend funds allocated in the current financial year and reprioritise funding for critical areas without requesting additional funds.

Some departments’ spending was relatively slow, for example the departments of Local Government and Traditional Affairs (49.2 per cent), Office of the Premier (57.9 per cent) and Public Works, Roads and Transport (60 per cent). The projected provincial overspending was possible in the departments of Health (R218 million) and Education and Training with (R42 million), particularly in respect of compensation of employees’ budgets. Three departments projected to under-spend their allocated budget, namely, Agriculture and Rural Development (R36.5 million), Finance (R6 million) and Social Development (R4.4 million).

The average provincial spending on compensation of employees stood at 76.13 per cent or R12.8 billion of the allocated budget of R16.8 billion. In aggregate, provincial departments were projecting to overspend their 2013/14 personnel annual budgets by R214 million. This was mainly in the departments of Health, Education and Training and Economic Development, Environment, Conservation and Tourism. The Department of Agriculture and Rural Development projected to under-spend the compensation of employees’ budget by R6.3 million.

Some of the challenges identified by the Province were delays and non-compliance with SCM processes; lack of capacity to monitor and administer grants in the Province; non-compliance with requirements of the Division of Revenue Act framework in terms of reporting and planning; and reporting and implementation not aligned with the business plan targets.

In order to mitigate these challenges, the Province planned to advertise tenders as early as possible; register service providers to start on time, provide training and assist with monitoring. The Province also planned to establish the Provincial Budget Forum to improve budget planning and execution; c onduct quarterly engagements with departments on the provincial management of personnel and the compensation of employees and to encourage the appointment of skilled staff and filling the key vacant positions to improve planning and financial skills.

3.4 Western Cape

The Province’s total adjusted budget for the financial year 2013/14 amounted to R44.04 billion, of which R341 million was added during the adjustment process. Provincial own receipts collected up to 31 December 2013 amounted to R1.8 billion, or 87.2 per cent of the adjusted budget. The Province is projecting to over-collect on its own revenue budget by R164 million. The bulk of the Provinces’ own revenue was derived from Motor Vehicle License fees, which contributed R810.3 million or 45.4 per cent to departmental total revenue. The Department of Health’s collected own revenue amounted to R451.7 million.

Provincial expenditure totals R31.8 billion or 72.2 per cent of the adjusted budget amounting to R44 billion . Under-spending of R61.2 million was projected by the departments of Health and Transport and Public Works. The Department of Health projected under-spending of R49.7 million related to infrastructure challenges, which mainly included longer than expected tender procedures as well as unpredictable weather conditions. The Department of Transport and Public Works projected under-spending of R11.5 million relating mainly to the slow filling of posts. The new structure was approved at the end of October 2013, resulting in delays in the recruitment process.

Spending on infrastructure amounted to R2.6 billion or 55.2 per cent against the adjusted budget of R4.7 billion. The weather conditions experienced in the Province as well as labour challenges within the construction environment, made it impossible to keep up with the planned rate of delivery. The Department of Public Works (implementing agent) together with the departments of Health and Education (client departments) utilised the period to improve planning to ensure that delivery takes place.

3.5 Gauteng

The Province had received an equitable share amount of R46 billion and conditional grants of to R11.9 billion. A total of R3.2 billion was collected from different provincial own revenue sources. The total provincial budget amounted to R61.1 billion, which was adjusted upwards by R3.5 billion.

Additional allocations were mainly in respect of goods and services in the Department of Health ; procurement of LTSMs and infrastructure delivery in the Department of Education, compensation of employees and the extension of the Gauteng on-line contract.

Overall, provincial expenditure amounted to R57.4 billion or 72 per cent of the adjusted budget, in the third quarter of 2013/14 financial year. The Province projected to over-spend by a net amount of R1.568 billion by the end of the financial year. Projected over-spending was largely in the Department of Health (R1.0 billion) in respect of payments for the Cuban doctoral programmes and re-grading of clerical posts. The Department of Education’s projected over-spending stood at R456 million, due to pressures in personnel and in goods and services’ budget.

Other departments that expected to overspend by the end of the financial year include the Office of the Premier (R70 million) relating to costs incurred during the state funerals and Roads and Transport (R18.7 million) . Expenditure on conditional grants was only at 55 per cent of the allocated funds. The delivery of infrastructure projects had been progressing at a slow rate. The Province had been exploring ways to reduce accruals, as these accruals reduce the buying power of the budget, particularly in the Department of Health.

3.6 Mpumalanga

The Province had spent R25.4 billion or 75 per cent of the adjusted budget of R34.185 billion and projecting a pressure of R764.9 million mainly in the departments of Health, Education and the Office of the Premier. Storm damage and LTSM in the Department of Education, an emergency situation that occurred in the Office of the Premier and the medicine account in the Department of Health, put pressure on the provincial budget.

Overspending (R252 million at 30 September 2013) on compensation of employees in the Department of Health remains a key concern. A task team was established to address this challenge and certain items of expenditures had to be stopped in order to stay within the budget in the 2013/14 financial year. These included leave discounting , variable overtime , performance bonuses (t he Department had been advised that no bonuses should be paid until the financial situation improves) and correction of Occupation Specific Dispensation (OSD) underpayments. C ommuted overtime payable to doctors could not be stopped as it forms part of the conditions of employment.

The Department had a challenge in implementing the Nursing OSD during 2007 which resulted in a number of under- and over-payments. The Department had been negotiating the correction of the under- and over-payments with the unions and an agreement was reached that the Department will correct the notches of the officials who were under-paid as from 1 November 2013.

The procurement of subsidised vehicles item of expenditure has a portion that is funded from compensation of employees. The Department had 15 orders issued for new subsidised vehicles but arrangements were made with the suppliers to supply these vehicles in April 2014 to reduce pressure on the current compensation bill.

In order to stay within budgets, certain expenditure had to be deferred to the 2014/15 financial year. The Department acknowledges that this is not the best solution as this was merely shifting the problem to a later date as all these expenditures still had to be paid in the 2014/15 financial year. The Province had started funding the Department very close to the norm of 27 per cent. The Province will be compelled to provide more funds to the Department of Health in order to normalise the budget of 2014/15. Currently the projected overspending has been reduced from R252 million to R3.1 million. This was dependent on the implementation of initiatives mentioned above.

It was found that 7 024 personnel were out of adjustment with a huge financial implication. Posts with a lesser budget are utilised to appoint officials who earn much higher salaries, putting pressure on the compensation of employees’ budget.

Overspending on compensation of employees had been a challenge over a number of years. At the end of the second quarter of 2013/14 financial year, the Department of Health projected to over-spend compensation of employees by R12 million. The Department had employed 92 officials that were not budgeted for. In order to correct the projected over-expenditure, a moratorium was placed on filling of posts, all acting allowances were stopped, overtime paid only in extreme cases, leave discounting and all employees were encouraged to take leave.

Due to implementation of the measures indicated above, the Department is no longer projecting to overspend on compensation of employees’ budget. The Department is currently projecting under-spending at 31 December 2013 of approximately R8.8 million.

With regards to the goods and services budget of the Department of Health, it was reported on 4 January 2014 that the department expected to overspend the budget by R343 million and that the bulk of that amount was in the medicine account. Unfortunately, there were no available funds in the Provincial Revenue Fund that could fund the new pressure.

The Provincial Treasury had been monitoring the risk that funds should not be depleted to a point of not being able to pay the March 2014 salaries in this Department. The bank statements drawn on 15 February 2014 reflects an overdraft of R80 million. The Department was cautioned not to take payments to the bank in an event that cash was not adequate. The medicine account remains a major problem.

3.7 Free State

At the end of the third quarter of 2013/14, the Free State Province had spent R20.3 billion or 75.4 per cent of the adjusted provincial budget of R26.9 billion. The Province projects to over-spend its budget by R1.3 billion or 5 per cent, by the end of the financial year. Provincial own revenue collected amounted to R603.6 million or 70 per cent of the adjusted budget of R856.3 million.

The Province had developed measures to strengthen monitoring and budget execution. These measures included reprioritising R80.4 million towards bursaries in the Department of Education during the adjustment appropriation, of which R79 million from other departments would assist in reducing projected over-expenditure. Most of the measures proposed by the task team established were cash management driven. Additional measures included movement of vacant funded posts between directorates, transfer of excess staff to schools in need, postponement of filling of vacant posts, centralisation of appointment of temporary educators as well as headcount of educators and learners with the support of Provincial Treasury.

Measures to assist the Department of Health included joint implementation of the turnaround strategy with the Provincial Treasury from May 2013. The objectives of this strategy are to restore financial sustainability of the Department; to address inefficiencies in the management of assets and liabilities; to enhance governance and improve service delivery.

Some of the initiatives taken by the Department of Health to contain the compensation of employees’ budget included reducing the number of interns by not renewing contracts on expiry, encouraging early retirement of administrative and support staff, delay in-sourcing of the remaining services and review of available human resources capacity, merge some clinics to share personnel resources and costs and fill posts in new hospitals through redeployment of existing staff.

The goods and services budget in the Department of Health had also been under pressure. The Province devised strategies to, amongst others, eliminate usage of agency doctors with immediate effect, review major contracts and negotiate, establish a centralised procurement committee at district and head office for all institutions, stop procuring pharmaceuticals through a secondary system, manage medical systems and take stock of and manage medicines and medical consumables to enable effective distribution of available stock.

4. Observations

Having engaged the National Treasury and seven provincial treasuries, excluding KwaZulu-Natal and Limpopo, the Select Committee on Finance observed the following:

4.1 The key challenge in some provinces is not necessarily lack of finances but management of finances and the decisions taken;

4.2 The headcount verification process in most provinces was taking a long time to finalise and that remained a challenge. Based on the preliminary numbers , compensation of employees’ budget stood at 60.9 per cent of the 2013/14 total adjusted provincial budget;

4.3 Provincial budgets that are not credible and unreliable projections remained a challenge across most provinces and that was compromising government performance. A trend had been observed in the third quarter of the 2013/14 financial year, that provinces project over-expenditure but fail to spend adjusted budgets;

4.4 Projected over-expenditure in the Free State province was too high compared to the national average, particularly in the departments of Public Works and Agriculture;

4.5 Some provinces still made use of the Pay Master General (PMG) account and the Corporation for Public Deposits (CPD) as means of savings for funds that are meant for service delivery;

4.6 Some provinces made advance payments and transferred funds to entities or implementing agencies and reported that as money spent. This does not necessarily mean that money had been spent and services had been delivered;

4.7 Performance target setting in some provinces is conservative and planning for aligning financial and non-financial performance remained poor;

4.8 The Departments of Education in provinces, particularly the Gauteng and the Western Cape plan poorly for in-migration of learners each year and are often unprepared for an increased number of learners from other provinces;

4.9 The Free State Province redirected funds from other programmes to bursaries. This may not be sustainable and may compromise the successful implementation of original plans and projects;

4.10 There are challenges in the Mpumalanga Province in the departments of Public Works, Education and Agriculture. The Committee also noted the importance of agriculture and its potential to create jobs; and

4.11 There were no measures in place to address the challenges experienced by the Department of Human Settlements in the Eastern Cape Province. The Eastern Cape Provincial Treasury prioritised assistance to the departments of Education and Health and focused less on the 11 other provincial departments.

5. Recommendations

5.1 National Treasury should ensure that provincial treasuries are well resourced to effectively execute its oversight role over provincial departments and assist them to ensure that services are delivered as planned;

5.2 The provincial treasuries should make use of their powers contained in the Public Finance Management Act, (No.1 of 1999) to conduct oversight over their provincial departments; and also effectively utilise the Medium Term Expenditure Committees (MTEC) processes and interdepartmental meetings to monitor and improve financial management in departments;

5.3 The Provincial Treasury in the Free State Province should improve its support to all the provincial departments, particularly Public Works and Agriculture, to contain expenditure in the current financial year;

5.4 Provinces should ensure that their programmes are implemented on time to minimise investment of unspent funds in savings accounts as that compromises the delivery of services;

5.5 The Provincial Treasuries should monitor the transfer of funds to public entities and implementing agencies to ensure that the budgets spent translate into delivery of services;

5.6 The Provinces should consider reducing the excessive use of consultants as the money spent on consultants could be used to deliver services;

5.7 National Treasury and provincial treasuries should fast-track the process of addressing credibility of projections with provinces to assist the provincial departments to make informed decisions. Provincial Treasuries should scrutinise departmental quarterly performance reports to ensure that spending speaks to performance;

5.8 The provincial departments of Education, particularly in Gauteng and the Western Cape, should use past trends and the latest mid-year population information available from StatsSA to properly plan for future in-migration of learners;

5.9 The Provincial Treasury in the Free State Province should assist the Department of Education to better manage the bursary allocation process;

5.10 The Provincial Treasury in Mpumalanga Province should intensify its oversight role over the provincial departments, particularly, Public Works and Agriculture to verify and ensure that projects are delivered in line with expenditure reported; and

5.11 The Provincial Treasury in the Eastern Cape should work together with the provincial and national departments of Human Settlements to address challenges identified.

Report to be considered.