ATC140320: Report of the Select Committee on Finance on the 2012/13 Quarterly Provincial Treasury Budgets and Expenditure, dated 19 March 2014
REPORT OF THE SELECT COMMITTEE ON FINANCE ON THE 2012/13 QUARTERLY
TREASURY BUDGETS AND
19 MARCH 2014
Introduction 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, including considering and reporting
national macro-economic and fiscal policy;
to the fiscal framework, revised fiscal framework and revenue proposals and
revenue published by the National Treasury; and
related matter set out in this Act.
Furthermore, the mandate encompasses the Committees
function to legislate, conduct oversight on 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.
Committee through its Strategic Plan adopted
a programme of engagement
with provincial treasuries as part of its key priority areas. The Committee continues
to interact with all provincial treasuries to ensure financial sustainability
and enhance its oversight role.
The Committee had
engagements with the Members of the Executive
Council (MECs) of Finance from the following provinces: Eastern Cape, Northern
Cape, North West, Western Cape, Gauteng, Mpumalanga, Free State, and KwaZulu-Natal.
The public hearings were held on 14 and 29 May
2013, 05 June 2013 and 13 August 2013, in Parliament.
Public Finance Management Act (section 18 (1) (a) and (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.
Overview of the 2012/13 provincial budgets and
National Treasury reported that the provinces had spent R395 billion or 98.2
per cent of the total provincial adjusted budgets by the end of the financial
year 2012/13. Four provinces, Free State, Gauteng, KwaZulu-Natal and the
Western Cape tabled a second adjustment budget during March 2013.
aggregate, all provinces have under-spent their adjusted budgets by R7.4
billion or 1.8 per cent. The bulk of the under-spending as a percentage of the
total adjusted budget was in the following provinces: North West (R1.3 billion
or 4.7 per cent); Northern Cape (R558 million or 4.7 per cent); Limpopo (R2.2
billion or 4.6 per cent) and the Eastern Cape (R1.2 billion or 2.1 per cent).
KwaZulu-Natal had the biggest budget but reflected the smallest under-spending
of R539 million or 0.6 per cent.
Table 1: Provincial
aggregated budgets and expenditure as at 31 March 2013
provinces had under-spent their compensation of employees budget for the first
time since 2007/08. This could be seen as an opportunity to seek permanent
stability on this item. Stronger controls over personnel were evident in the
majority of provinces (Eastern Cape, Gauteng, KwaZulu-Natal, Limpopo, Northern
Cape and the Western Cape). There had been improvements in capital spending,
with an increase from 88 per cent to 94 per cent on aggregate.
Summary of Provincial Issues Identified by the
The provinces still
needed to do more in order to establish the productivity gains from historical
standards and interpretation issues made it difficult to differentiate between
front line and support staff. Budgeting for goods and services remained poor,
particularly, budgeting for medicines and medical supplies and contractors. Despite
the improvements, management of capital budgets and performance was
Fiscal projections were
still poor in most provinces and conditional grants were the largest
contributor to under-spending.
Health outcomes had
improved in Gauteng Province, from an over-expenditure of R426.6 (1.8 per cent)
in 2011/12 to under-spending of R229.5 million in 2012/13. Compensation of
employees budgets in Gauteng and KwaZulu-Natal provinces had also improved. In
Mpumalanga Province, infrastructure performance in the Department of Health
remained a concern.
The National Treasury
had started on the following interventions:
Roll out of the latest round of the Budget
Formulation and Budget Analysis courses to capacitate provincial officials with
the technical skills required in these areas;
Roll out of Infrastructure Delivery
Management System (IDMS) to all provinces to prepare for the 2014 bidding
process for infrastructure funds;
Taken steps through the Technical Committee
on Finance to address poor spending projections;
Roll out of the Financial Management
Improvement Programme (FMIP), in partnership with the European Union, to
improve financial management practices in provinces; and
An expenditure report review project had been
launched between the National Treasury and the Department of Performance
Monitoring and Evaluation (DPME) to assess the success or failure of government
programmes and propose policy reforms that will improve delivery in the future.
Briefing by the Provincial Treasuries
Eastern Cape Province
The Eastern Cape Provincial Treasury reported that, the full allocation,
100 per cent of its equitable share from National Treasury was received. On the
conditional grants, a total amount of R286.2 million was not received by the
Province due to the slow spending during the 2012/13 financial year in respect
of the following conditional grants:
Professions Training and Development grant (R928 thousand);
Human Settlements Development grant (R284.8 million); and
Mass Sport and Recreation Participation Programme Grant
The Province collected provincial own revenue amounting
to R1.019 billion which, translates into 131.6 per cent against the adjusted
budget of R774.5 million. This resulted in over collection of own revenue amounting
to R244.6 million, mainly from the following departments: Provincial Planning
and Treasury (
from interest earned on bank balances); Rural
Development and Agrarian Reform (
million mainly from the monies s
from the prior years surplus funds; Health (
the over collection on patient fees).
Overall, the Province had spent R55.9 billion or 97.4
per cent of its adjusted budget, which resulted in an under expenditure of
R1.469 billion (2.6 per cent of the adjusted budget).
in the Eastern Cape was evident in the following departments, the Basic
Education (R691.9 million), Health (R169.5 million) and Human Settlements (R291.7
The Eastern Cape Provincial Treasury cited the following
that contributed to the under
spending by the Department of Education; payment of temporary educators whose
contracts were extended until 31 March 2013, delay in the payment of the Rural
Allowance incentive scheme and delay in the payment of temporary educators
appointed by the School Governing Bodies.
The Province managed to
contain expenditure on the compensation of employees within its budget.
Compensation of Employees
was the main contributor to the R1.469 billion under
was one instance of over spending reported by the Province, which was on the goods
and services budget (R245.4 million). The following reasons were provided;
medicines, National Health Laboratory Services (NHLS),
blood emanating from accruals in the Department of Health;
he centralised procurement and payment of Learner,
Teacher Support Material (LTSM) for section 21 schools (whose budget is under
transfers and subsidies) in the Department of Education and
and lease costs in the Department of Social
With the improved
spending in 2012/13 financial year, it was reported that, the Provincial Treasury
will strengthen its monitoring controls to ensure that the increased spending is
commensurate with value for money. These controls include continuation of
service delivery site visits and detailed verification of the March
expenditure spike. It was emphasised that, Provincial Treasury will continue
to institutionalise the Accountability Model wherein letters will be issued to
the Executive Authorities to give account on poor performance by the provincial
Northern Cape Province
The Northern Cape Provincial Treasury reported that
the adjusted provincial own revenue amounted to R228.2 million against the
actual budget of R263.59 million at the end of March 2013.
The Province over-collected its adjusted own revenue
budget as at the end of March 2013, with a net amount of
R35.4 million. This was
as a result of interests generated by the Provincial Treasury, amounting to
and Motor Vehicle
Licenses over-collection in the Department of Transport, Safety and Liaison
The total provincial expenditure by all departments
95.3 per cent)
of the total
adjusted budget of
R11.795 billion in
2012/13 financial year
. It was further reported that, the expenditure on
conditional grants up to the end of March 2013 amounted to
87 per cent)
of the total adjusted budget of
The Department of Agriculture, Land Reform and Rural
43.1 per cent)
total R500.7 million
conditional grants allocated, under spending by
R284.7 million. It was further reported that, the Department had
spent on the Comprehensive Agriculture Support Programme Grant (CASP), with a
total amount of
Department of Health had under-spent on the Comprehensive HIV and Aids Grant
with a total amount of
and furthermore, the Department spent only
of the total allocation of
in respect of the Nursing College Grant.
The aggregate provincial under-spending by all
departments amounted to
and conditional grants account for a net of
The Province under-spent on the
budget of compensation of employees by R156.065 million, largely by the
departments of Health (54. 8 million), Education (R42.7) and Roads and Public Works
The Province indicated that the reason for the under-spending
Department of Agriculture, Land Reform and
Rural Development was a delay in the technical assessment of the damages that
occurred during the floods in the Province.
agreement had been reached between National Treasury, Provincial Treasury,
national and provincial departments of Agriculture to reschedule this
allocation beyond the 2013 Medium Term Expenditure Framework (MTEF) period to
allow the provincial department time to address the current challenges in terms
of spending this allocation.
The Provincial Treasury expressed its concern towards
the National Department of Sport, Arts and Culture about only availing an
additional amount of R2.6 million
for the Mass Sports
towards the end of
March 2013 for the Provincial Department of Sport, Art and Culture, as the
Department could not spend it within the financial year.
North West Province
The North West
Provincial Treasury reported that, for the 2012/13 financial year, the budget
allocation amounted to R26.91 billion. The Province had an adjusted budget of
R5.2 billion for the conditional grants, of which
Province spent R4.5 billion (87 per cent) resulting in preliminary under-spending
of R683 million.
The preliminary provincial spending was
R25.6 billion (95 per cent) of the approved adjusted budget of R26.9 billion as
at 31 March 2013 with under-spending of R1.3 billion.
average provincial spending on compensation of employees was R15.3 billion
(99.8 per cent) of the allocated budget of R15.319 billion.
Provincial Treasury reported that, the under-spending was mainly registered
under Land and Buildings (R614 million), while goods and services contributed
R406 million, transfer payments R172 million, equipment R104 million and
compensation of employees R26 million.
lowest spending of 53 per cent was recorded by the Department of Public Works,
Roads and Transport.
Roads Maintenance Grant,
was mainly as a result of
the supply chain committee not being fully functional.
was reported that the under-spending primarily occurred in the following departments:
Public Works, Roads and Transport (R816 million); Sport, Arts and Culture (R103
million); Education and Training (R88 million); Agriculture and Rural
Development (R85 million); Health (R63 million); Economic Development; and
Environment, Conservation and Tourism (R58 million).
The reasons for under-spending include lack of
capacity and skills to plan and
implement and deliver on infrastructure and conditional grant projects; vacant
key personnel posts in some departments; lack of financial skills and awareness
of government policies and prescripts and monitoring and obtaining invoices for
payments from service providers for services rendered.
The following were reported as intervention measures by
the Department of Public Works, Roads and Transport to ensure that the R10 million
that was allocated for infrastructure capacity building will enable them to perform
their implementing role as custodian of assets;
financial control and monitoring, thus ensuring that the budget allocated is
well spent and the value for money initiative is attained;
the Provincial Treasury Supply Chain Unit to ensure the roll out of the new
Treasury Regulations in terms of the construction procurement for the delivery
and maintenance of infrastructure;
the Provincial Budget Forum which aims to improve budget planning and execution
by creating a platform to share challenges; identify best practices and
procedures to improve the quality and comprehensiveness of the Estimates of Provincial
Revenue Expenditure and ultimately improve government spending;
the credibility of the MTEF process and the scope of practical economic impact
analysis coupled with the refinement of expenditure management; and
quarterly engagements with departments on the provincial management of
personnel and the compensation of employees regarding the growth in numbers in
non-critical areas such as support and administration.
Western Cape Province
The Western Cape Provincial Treasury reported that
the main budget for the 2012/13 financial
R39.92 billion, which was adjusted to the amount of R40.3
Provincial Treasury reported that an amount of R8.809 billion as per the
Division of Revenue Act (Act No. 5 of 2012) was received in the form of conditional
grants, another gazetted amount of R57.7 million and an amount of R15.3 million
through provincial rollovers. It was reported that the total conditional grant
allocation was R8.882 billion for the 2012/13 financial year.
for the financial year 2012/13
amounted to R39.9 billion
(99.2 per cent) of the adjusted budget of R40.3 billion. It should be noted
that a second adjustment budget was appropriated to account for the Devolution
of Property Rates and Mass Participation and Sports Development conditional
The Western Cape Provincial Treasury reported that the
provincial departments had reflected a total under-spending of R318.793 million,
which relates to compensation of employees of R305.3 million, goods and
services under-spending of R106.2 million, capital under-spending of R182.5
million while total transfers and subsides reflects an over-spending of R264.1
million (Education transfers to schools).
Spending on conditional grants amounted to R8.776
billion (98.8 per cent) against the total national allocation of R8.882
The Gauteng Provincial Treasury reported that, a
t the end of the financial year 2012/13, a total of
R74.8 billion was received, of which R70.9 billion was transfers from national
in the form of equitable share and conditional grants.
revenue collections by the Province amounted to
The preliminary spending by Gauteng Provincial
Government (GPG) departments stood at R71.7 billion against national transfers.
This means that without provincial own revenue, the Province would have largely
It was reported that a
n amount of R582 000 for the Mass Sport and
Recreation Grant under the Gauteng Department of
Arts, Culture and Recreation
transferred by the National Department of Sport and Recreation due to
The following departments over-collected revenue during
the 2012/13 financial year:
Department of Economic Development
has collected R721.8 million
an estimate of R663.8 million, mainly in gambling fees;
Department of Health has
collected R477 million of the R471.6 million estimated, largely on patient fees;
Department of Roads and Transports
adjusted appropriation was R2.406 billion but managed to collect R2.459 billion,
mainly motor vehicle licence fees ; and
Provincial Treasury has collected
the adjusted appropriation (an over-collection of R37.8 million in interest
under-collection was mostly from non-revenue generating departments
(R3.97 million), Sport, Arts, Culture and Recreation (R182 thousand) and Infrastructure
Development (R1.364 million).
The Gauteng Provincial Treasury reported that the main
budget was adjusted upwards by R5.4 billion, from R69.3 billion to R74.7 billion.
The increase was mainly for accrual
payments in Health and Improved Conditions of Service (ICS) for GPG departments
and decentralisation of functions from Finance to GPG departments.
The preliminary expenditure was at R73.7 billion,
under-spending by R925 million. An amount of R500 million of the R925.3 million
was for the commitments and invoices that could not be processed by the end of
the 2012/13 financial year.
The Gauteng Provincial Treasury had received requests
for rollovers from GPG departments amounting to R500 million which corresponds
to R510.945 million available cash and had assessed the request as part of the
established budget processes.
Almost all GPG departments were showing a slight
under-spending, which could be explained by commitments and invoices that could
not be processed except for GDARD, which had overspent by R374 thousands. T
total provincial wage bill was at R40.3 billion, of which the Province spent
R40 billion, with R280.6 million remaining unspent. Under goods and services
budget item, the Province overspent by R528 million, mainly due to funding
pressures in the departments of Education and Health.
The overall provincial grant funding was increased by
R596 million from R15.6 billion to R16.2 billion.
A total amount of R15.2 billion (93 per cent) was
spent at the end of the 2012/13 financial year.
The major under-spending was recorded in the
departments of Education, Health and Transport. It was further reported that
the Provincial Treasury will conduct a deeper analysis during 2013/14, to improve
the performance of grants.
The following were reported as achievements emanating
from intervention measures by the Province:
The overall fourth quarter financial
performance showed a general improvement in the management of finances in the Province;
The Province implemented cost-containment
The management of cash has significantly
The Provincial Own revenue collection had
improved and would be given priority in order to enable funding of provincial
Mpumalanga Provincial Treasury reported that
the provincial main budget allocation was R30.967 billion and
it was adjusted with R585.303 million, taking the total adjusted budget to R
adjusted budget amounted to
while the Department of Healths adjusted budget amounted to
Province spent R31.3 billion of the R31.5 adjusted budget and under-spent by
R219.5 million (2.4 per cent) by the end of the financial year 2012/13. Largely,
the departments that contributed to under-spending were Social Services (R510.5
million), Health (R326.7 million), Legislature (R16.9), Cooperative Government
and Traditional Affairs (R12.6 million) and Community Safety, Security and Liaison
The Mpumalanga Provincial Treasury reported
that the actual compensation of employees spending as at 31 March 2013 was
R18.365 billion of the adjusted budget of R18.659 billion.
Department of Educations adjusted budget amounted to
R14.284 billion, over-spending by R67.596 million (0.5 per cent).
The Department of Healths adjusted budget
amounted to R7.649 billion, with the actual expenditure being R7.499 billion (98.0
by R149.646 million (2 per cent).
The Department of Education had over-spent its
allocated conditional grant budget of R1.451 billion, having spent R1.488
The Provincial Treasury reported the following
challenges for the Province:
The budget planning and management
processes are not effective at most departments;
Poor planning delays commencement of
projects and procurement processes;
Problems of the March spike, accruals
which exceed unspent voted funds, delays in appointments, overspending on line
items and economic classification, which then necessitates virements; and
completeness of accruals. Accruals are not disclosed upfront by most
departments and the risk of being discovered by the Auditor-General may easily
result in qualification depending on the materiality level. Also, this resulted
in matters of emphasis on misstatements in the annual financial statements.
Free State Province
The Free State Provincial
Treasury reported that the 2012/13 financial year adjusted budget amounted to
R25.9 billion. The E
quitable Share amounted to R18.795 billion
(72.6 per cent)
amounted to R5.96 billion (23.0 per cent) and provincial own receipt amounted
to R821 million (3.2 per cent).
The Free State Provincial
Treasury reported that the overall provincial expenditure amounted to R25.7
billion (99.0 per cent spent). It was reported that the provincial departments managed
to spend an amount of R5.562 billion of the conditional grant funding.
The major contributors to
the under-spending were the Health Department,
due to payments for capital assets (R241 million),
mainly due to the compensation of employees
(R13 million) and buildings and fixed structures (R27 million).
major contributors to the over-spending on the Compensation of Employees were
reasons for over-spending were provided by the Department of Education
in conditions of
service in respect of Compensation of Employees and learner and teacher support
material (R72 million).
It was further mentioned that over-spending in the
Health Department was attributed to
filling of vacant critical posts (these are higher than projected condition of
services increment), in-sourcing of security and cleaning staff and the intake
of Cuban doctors.
The Provincial Treasury
reported that the following provincial departments under-spent on the allocated
grants: Department of Education - Dinaledi
(70.3 per cent) and HIV and Aids Grant (Life Skills Education) 75.3 per cent;
and the Department of Health - National Health Insurance Grant (66.5 per cent),
Health Infrastructure Grant (45.1 per cent), Nursing Colleges and Schools Grant
(35.5 per cent), and Hospital Revitalization Grant (74.9 per cent).
It was reported that the current payments amounted to
R19.6 billion (75.6 per cent), o
which the compensation of employees expenditure amounted to R15.2 billion (58.6
The Provincial Treasury reported inadequacy of the
provincial fiscal envelope due to declining equitable share allocations as the main
challenge for the Province.
The following were reported as planned interventions
by the Province:
Introduction of Provincial Budget Management Forum;
Investigate different options to
in a phased-in approach, e.g. budget
Source in additional professional capacity to assist with budget
restructuring and reprioritisation;
Further reprioritisation of the 2013/14 budget in order to i
dentify possible areas where
government can scale down without compromising service delivery and
lign the budget structure to
respond to socio-economic challenges in the Province; and
Building capacity to benefit from
alternative sources of funding.
KwaZulu-Natal Provincial Treasury reported that the bulk of the provincial
receipts relate to equitable share, contributing 79.7 per cent of total
revenue, with conditional grants at 17.2 per cent and provincial own revenue
making up the balance of 3.1 per cent
The unaudited actual outcomes
show that the Province received R14.8 billion conditional grant funding, with a
shortfall of R14.7 million when compared to the Final Appropriation.
Province over-collected revenue against provincial own receipts, collecting
R2.671 billion compared to the budget of R2.3 billion.
The surplus at the end of 2012/13 financial year amounted
to R1.76 billion and results from the following:
budgeted for a surplus of R900 million in 2012/13 financial year;
under-spent its budget allocation by R539.2 million, in aggregate;
over-collected its own revenue when compared to the final appropriation by
R331.6 million; and
Mitigating this, to a lesser extent, is
the fact that National Treasury did not transfer R14.6 million in respect of
the Land Care Grant, Education Infrastructure Grant and Mass Participation and
Sport Development Grant.
The Provincial Department of
reflects year-end over-collection of
R53.2 million, mainly due to the unanticipated sale of redundant vehicles
sale of capital assets
as well as the higher than anticipated collection of patient fees resulting
from the Provincial Treasury-led initiative to collect all patient and boarding
services fees due.
The Department of Education
over-collected revenue by R27.99 million,
mainly due to
higher than anticipated recovery of outstanding staff debts and
clearing of stale cheques.
The aggregated expenditure for the year amounted to
R85.6 billion, compared to the Final Appropriation of R86.183 billion, resulting
in under-spending of R539.2 million.
While the Province ended the year with
under-expenditure, it is worth noting that
compensation of employees
over-spent by R432.5 million.
This was mainly due to the Department of Education, the carry-through effects
of the shortfall in funding for Occupation Specific Dispensation (OSD) and
various wage agreements, the carry-through effects of the conversion of 600
teacher assistants to teacher aids and provision for rural
posts (such as Mathematics and Science), which were made available in 2011/12
It was reported that three departments over-spent
their budget at year-end, with the most significant by far being the Department
of Health, at R99.602 million, followed by the Department of Transport at
R6.514 million and the Provincial Legislature at R1.971 million.
The Provincial Treasury
reported the following reasons for the over-spending by the Department of Health:
Faster progress than originally expected;
higher than expected costs on some infrastructure projects including the Dr
Community Health Centers
(CHCs) as well as the KZN Provincial Laundry;
The higher than expected costs of forensic
investigations, audit fees, subsistence and travel costs;
Closing the gap in standards for municipal
clinics that had been
commissioning of CHCs and the King
The increased demand for various
non-negotiable items such as medicines and blood transfusions.
The Committee made the following observations:
Treasuries relied on the information provided by the provincial departments in
monthly spending reports without verification of such information;
provincial departments were not able to spend the allocated budgets during the
year with most of their spending taking place during the last quarter of the
financial year. The March spike was of concern to the Committee;
KwaZulu-Natal and Gauteng Provinces reflected amounts as being spent by the provincial
departments whereas funds were transferred to implementing agencies and not
provincial departments consistently failed to spend proportionally in the first
quarter of each financial year due to poor planning;
was a recurring issue in most provinces and that compromises service delivery;
on compensation of employees remained an issue although trends are moving in
the right direction. Some provinces were not budgeting accurately for goods and
management in some departmental Chief Financial Officers offices in the provinces
remained a challenge;
in the KwaZulu-Natal Provincial Department of Health is of great concern to the
Committee as there are often no consequences for overspending in general;
mandates remained a problem in some departments in the KwaZulu-Natal Province;
Western Cape Provincial Treasury submitted a highly technical report, which the
Committee could not substantively interact with;
Gauteng Provincial Department of Health surrendered R3 billion unspent money in
2012/13 to the National Treasury. This money was mainly for the Hospital Revitalisation
Grant which could not be spent as the hospital was not yet completed; and
in the Gauteng Province occurred mainly in the
Department of Health, particularly in the Infrastructure and Administration
The Committee made the following recommendations:
The Provincial Treasuries should:
the monthly reports received from the provincial departments as some reports
are not the true reflection of their actual finances;
measures in place, that would assist the provincial departments with
proper planning for
in order to curb fiscal dumping;
an analysis of the financial and non-financial information, within three
months of the commencement of the 5
that appropriate staff members attend the training that is provided by National
KwaZulu-Natal, Gauteng and Western Cape Provincial Treasuries should develop
measures to monitor the performance of the implementing agencies as according
to their records funds allocated are well spent. Verification and monitoring of
the work that is done by implementing agencies is necessary;
to provide the Essentials of Budget Formulation and Budget Analysis
training to the relevant officials in provincial departments;
to assist the Provincial Treasuries to improve target setting;
and share with the Committee the CFO skills audit report.
provinces should use the Limpopo headcount model for Health and Education to
verify and manage employees in their departments.
Report to be
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