ATC180807: Report of the Select Committee on Finance on the Provincial Treasuries’ Preliminary Budget Outcomes for the 2017/18 Financial Year, dated 07 August 2018
REPORT OF THE SELECT COMMITTEE ON FINANCE ON THE PROVINCIAL TREASURIES’ PRELIMINARY BUDGET OUTCOMES FOR THE 2017/18 FINANCIAL YEAR, DATED 07 AUGUST 2018
1.Introduction and background
The Select Committee on Finance is mandated to exercise oversight over provincial government departments and their respective public entities. The Committee influences budget policy decisions through implementation of the Money Bills Act. The Money Bills Act gives the Committee powers and functions to consider and report on macroeconomic and fiscal policy as well as the fiscal framework.
The Committee engages with the Provincial Treasuries on an annual basis to ensure fiscal sustainability and enhance its oversight role over provinces. 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 and assist the provincial departments and entities in building capacity for efficient, effective and transparent financial management.
The Committee had public hearings with the Members of the Executive Council (MEC’s) of Finance from all nine provinces on the 15th, 24th, 29th May, 05th, 12, 19th, and the 22nd June 2018, in Parliament. The Provinces presented their preliminary budget outcomes for the 2017/18 financial year.
The majority of the provinces have tabled their respective provincial economic growth and development strategies, which are aimed at stimulating economic growth and creating job opportunities. In some provinces, these strategies are driven by specific agencies such as Mpumalanga Economic Growth Agency (MEGA) in Mpumalanga, Wesgro in the Western Cape, Limpopo Economic Development Agency (LEDA) in Limpopo and Free State Development Corporation (FSDC) in the Free State Province. In other provinces various public entities implement various parts of their respective economic strategies.
The Provinces presented progress with implementation of their growth and development strategies, economic and fiscal positions and overall budget outcomes. The Committee has noted that the provincial economic growth strategies are aligned to broader government policy objectives. These include creation of opportunities for jobs, growth and investment; improving education outcomes; addressing social challenges; ensuring good governance; improving institutional capacity; improving access to basic services; improving quality of life of the people; sustainable rural development and ensuring fiscal sustainability.
The economic strategies are implemented through various interventions and initiatives, including the establishment of Special Economic Zones (SEZs); industrial technology parks and agri-parks; Small Medium and Micro Enterprises (SMME) and entrepreneurial development, oceans economy as well as various social and economic infrastructure projects.
It transpired from the engagements that overall provincial economic activity remains highly concentrated in a few regions, namely, Gauteng, Kwa-Zulu Natal and the Western Cape and the trend is likely going to remain in the future. The rates of unemployment differed significantly per province, and are worsening with the deteriorating economic environment.
On budget spending, the Provinces on aggregate have been able to spend over 90 percent of monies allocated. Delays in infrastructure projects, supply chain management challenges, high vacancy rates and the underspending trend continued.
In terms of the fiscal position, the majority of provinces had sufficient cash to cover the unpaid invoices. Key service delivery and fiscal frameworks risks included poor performance of infrastructure projects; high accruals as a percentage of total budget; increasing unauthorised expenditure in some provinces and continued support to development economic agencies that are not yet self-sustainable. The departments of Health and Education across most provinces continued to have major challenges in implementing and managing their budgets.
3.Eastern Cape Province
The Province preliminarily spent R74.6 billion or 99.0 per cent of its adjusted budget of R75.3 billion with under spending amounting to R750.3 million when comparing total spending against adjusted budget. The bulk of preliminary under spending of R750.3 million was on, compensation of employees; goods and services; and payment for capital.
The overall bank balances at the end of 2016/17 and 2017/18 financial years were R8.4 billion and R9.1 billion, respectively. The Province indicated the following as some known obligations and contingencies that are likely to be addressed:
- R16.7 billion for medico-legal claims against the Department of Health.
- Broadband estimated to be between R6 billion and R12 billion.
- Capped leave estimated at R6.2 billion, mostly in Health and Education.
- Health accruals, which are affected by price fluctuations.
- Provincial infrastructure backlogs estimated at R151.1 billion.
The accruals stood at R256.8 million at the end of March 2018. The Province over collected on its own revenue by R375.5 million of the adjusted budget of R1.337 billion. The main contributors being the Provincial Treasury, which reflects over collection of R437.6 million, Human Settlements Department which reflects over collection of R5.9 million, and the Department of Education which reflects over collection of R4.3 million.
The National Treasury identified the following:
- In spite of 8.2 per cent increase in Education personnel budget, the educator numbers remained the same at 52 633 between 2016/17 and 2017/18 financial year, whilst the learner numbers have declined by 165 984 or 9.2 per cent.
- Most teachers in the system are above the age of 50 years of age. There ought to be a balance with young teachers to provide continuity of change; sharing of experience; transfer of skills and sustainability of quality in Education.
- Poor infrastructure spending due to inadequate management of contractors and late processing of payments by the departments.
- Escalating cost of consultants and its impact on the overall management of compensation of employees. There is a need to expedite the approval of the department’s organogram to alleviate this challenge.
- Accruals amounted to R3.9 billion at the end of March 2017. This is money owed by provincial departments to the suppliers. Non-payment of suppliers negatively affects the economy of the province, especially the SMMEs.
4.Northern Cape Province
The Province was allocated a total adjusted budget of R16.7 billion in 2017/18, comprising of equitable share and the conditional grants. The preliminary budget outcome shows that the Province has spent R16.5 billion, 98.7 per cent. The Province has not been able to fully spend the allocated adjusted budget, with an under-spending of R211.8 million. All departments that projected to overspend have underspent in 2017/18 with the exception of the Department of Education.
The province over-spent on compensation of employees with an amount of R173.3 million of which the Department of Education and the Department of Health are the main contributors with R98.9 million and R73 million, respectively. On the positive side, due to moratorium the Province has managed to save an amount of R209.8 million between 2016/17 and 2017/18 on compensation of employees, however departments redirected these funds to other priorities.
The accruals and payables as at 31 March 2018 amounted to R1.4 billion. The Department of Roads and Public Works’ accruals and payables are as follows: rates and taxes amounts to R608 million, and fleet services amounts to R176.6 million. The accruals at the Department of Health are a continuous problem and this has a snow balling effect that impacts on the next year’s appropriated funds.
The Provincial Treasury has declined an application for condonement of irregular expenditure amounting to R1.13 million, that was submitted by the Provincial Department of Education. Concerning the irregular expenditure, the Province has the following challenges;
- High levels of non-compliance with the Supply Chain Management prescripts resulting in high amounts of irregular expenditure being reported;
- The bulk of the Department of Education and Department of Health irregular expenditure is caused by implementing agents, namely Public Works and Independent Development Trust (IDT);
- There is lack of appropriate preventative controls to prevent re-occurrence and lack of timeous and decisive action for transgression resulting in accumulation of irregular expenditure.
The National Treasury identified the following:
- Instability in senior management positions, making it difficult to implement corrective actions. The provincial Executive Committee has placed the department of Health under section 18 (2) (g) of the PFMA.
- Contingent liabilities amounted to R1.5 billion and were constantly increasing medico-legal claims.
- Accumulated unauthorised expenditure amounted to R381.2 million in 2016/17.
- There was a high percentage of unpaid invoices (R339.9 million in 2016/17) putting pressure on goods and services.
- Increasing overspending on compensation of employees in 2017/18, which is likely to continue in 2018/19.
- The province heavily depends on IDT to implement its infrastructure projects for the departments of Health and Education.
- Monitoring of these projects, however, is a main challenge due to capacity within these departments which results in the use of consultants. Other challenges include that projects take too long to be completed; termination of contractors due to poor workmanship, poor performance and cash flow problems. All these challenges delay service delivery and impact negatively on the budget.
- The management of cash has regressed. The province closed-off the 2016/17 and 2017/18 financial years with positive cash balances of R167.6 million and R86.8 million, respectively.
- Irregular expenditure has accumulated to R10.5 billion as at end of 2017/18 with the departments of Health, Transport, Safety and Liaison, Roads and Public Works and CoGHSTA being the main contributors. Unauthorised expenditure has accumulated to R903.6 million in 2017/18, with the departments of Health and Education being the main contributors.
- The province had R1.4 billion in unpaid invoices at the end of 2017/18.
5.North West Province
The North West Provincial Treasury has been placed under section 100 (1) (a) of the Constitution of the Republic of South Africa by the National Executive. The Province’s cash balances have been positive for the past seven years, due to a fixed deposit of R1.1 billion. The province had a cash balance of R1.4 billion at end of 2017/18.
Provincial spending has been stable over the years and that was consistent with the transfer from the Provincial Treasury. The provincial departments of Health, Local Government and Public works and Roads have erratic spending trends.
During the 2017/18 financial year, the province tabled a balanced R39.6 billion budget inclusive of transfers from National Treasury, mainly the equitable share and conditional grants as well as own revenue. As at the end of March 2017/2018, the province recorded total preliminary spending of R38.6 billion or 97.89 per cent, resulting in an underspending of R834 million mainly due to the strike action at the Social Development and Health departments. Invoices from the above two departments were not captured, inevitably resulting in non-payment of suppliers for services rendered.
The Province had a preliminary amount of R11.2 billion of irregular expenditure in 2017/18, which excluded the Departments of Health and Social Development since they did not submit the Annual Financial Statements.
The Province has the following financial challenges:
- All other provincial Education departments increased funding during the budget adjustment process but North West Province reduced its budget by an average of R7.2 million.
- Compensation of employees was reduced by R54 million in spite of the growth in headcount of 441 or 1.7 per cent of 26 109 educators.
- Early Childhood Development budget was reduced by R25 million due to delays in training of Grade R practitioners.
- Funds are often transferred to IDT well in advance before the Entity commences with construction of infrastructure.
- Accumulated unauthorised expenditure amounted to R384.8 million as at March 2018 of which, the department of Health contributed R362 million; Community Safety and Transport Management R13.7 million and Education and Sport Development R8.7 million.
- Accruals amounting to R1.1 billion were recorded at the beginning of 2017/18, contributed mainly by the departments of Health R751 million, Community Safety and Transport Management R152 million, and Public Works and Roads R133 million.
The National Treasury identified the following:
- The financial position of the North West Province remained healthy;
- The budget of the Office of the Premier, which is a non-social sector department has been growing;
- Its support to the Provincial Treasury to strengthen its capability to effectively lead and coordinate the IDMS governance structures in the province in order to improve the delivery of infrastructure projects and capacitate the SCM units; and
- A number of irregular contracts and projects are being investigated by the National Treasury.
- Irregular expenditure caused by non-compliance to Treasury regulations; non-compliance with SCM processes; no competitive bidding; failure to follow tended processes and services rendered without three written quotations.
- Accumulated fruitless and wasteful expenditure of R174 million was recorded as at March 2017.
- In the Department of Health, demand and procurement plans are of poor quality; contract management is weak; contract register is incomplete and the procurement system is still manual.
6.Western Cape Province
The Province was allocated a total adjusted budget of R59.9 billion in 2017/18, comprising of equitable share and the conditional grants. The preliminary budget outcomes show that the Province has spent R59.1 billion or 98.8 per cent of the adjusted budget. The net preliminary under spending for the 2017/18 financial year amounts to R706.8 million or 1.2 per cent of the adjusted budget and It is expected that once all year-end transactions have been captured that the under spending would marginally decrease.
The Province budgeted to collect R2.3 billion of own revenue in 2017/18 and collected R3.1 billion. The main contributors to over collection of revenue were the Department of Transport and Public Works which registered collections of R1.6 billion at the end of March 2018, higher than the R1.4 billion collected in the 2016/17 financial year. The Department of Health’s own revenue of R567.7 million at end March 2018 (4.4 per cent) was higher than the R543.6 million own revenue collected at the end of March 2017/18. Higher own revenue collections recorded in 2017/18 were due mostly to the improved revenue performance for administrative fees and other services provided by the Department. The 2017/18 hospital patient fee revenues were almost the same as was collected in the previous financial year. And lastly, Provincial Treasury own revenue at the end of the March 2017/2018 amounted to R604.9 million. Casino taxes contributed R537.5 million to own receipts, while horse racing taxes contributed R53.996 million to own receipts.
The Province had a positive cash balance of R5.7 billion with commitments of R5.8 billion and a deficit of R62.2 million. The year on year accumulated debt owed to departments amounted to R1.5 billion. The following departments contributed the largest share of debt balances at end March 2018, the Departments of Health (R680.5 million) and Transport and Public Works (R587 million). Fruitless and wasteful expenditure amounted to R15 thousand rand, irregular expenditure amounted to R84.7 million, and the Province does not have an unauthorized expenditure.
The claims against the State (medico-legal claims) shows an overspending of R48.5 million against the 2017/18 adjusted estimate. The main budget for the item was reduced from R93.8 million to R38.5 million. The timing of the final resolution of cases remains difficult to predict, making precise budgeting challenging. The expenditure against the item was recorded at R86.9 million, the highest expenditure recorded in the past seven years.
The Province was allocated a total adjusted budget of R112.5 billion in 2017/18, comprising of equitable share and the conditional grants. The budget was adjusted upwards by R828 million to cater for possible shortfalls in goods and services, compensation of employees due to growth in learner numbers and to accelerate infrastructure delivery. The preliminary budget outcomes show that the Province has spent R101.8 billion, 98.6 per cent. All 15 departments have underspent especially in goods and services and capital assets. The Province spent R63 billion or 101.5 per cent of the adjusted compensation of employee’s budget of R63 billion, driven by the departments of Health, Education, and Social Development which accounted for 93 per cent of this expenditure outcome. There was an over-expenditure of R942 million concentrated mainly in the Department of Education, and to a lesser extent, the Department of Health.
The Province adjusted its own revenue collection target upwards from R5.4 billion to R5.8 billion. Preliminary results reveal that own revenue collection stood at R6.1 billion, representing 106 per cent collection or R336 million extra. The main revenue contributing sources to this performance are motor vehicle license fees, interest on short term investments and patient fees which exceeded the set targets; while casino licenses narrowly under-collected against set target.
The Province has unpaid invoices amounting to R9.5 billion, of which, the Department of Health accounts for R6.8 billion or 71 per cent. The department has allocated R4.8 billion over the 2018 Medium Term Expenditure Framework for the payment of accrued liabilities (R1.5 billion in 2018/19). The department has put measures in place in terms of addressing accruals which are:
- All suppliers owed below R10 million will be settled immediately.
- The Department of Health has put in place a payment plan negotiated with all other suppliers.
The National Treasury identified the following:
- Instability in senior management positions at the department of Health has the potential to compromise accountability and service delivery,
- The 2017/18 litigation claims against the Department of Health amounting to R22.6 billion of which R19.4 billion were medical negligence claims. Cases are spiraling and there is a need for consequence management in this area. These claims are depleting funding for key service delivery and pose a huge threat to the sustainability of the Department.
- Unpaid invoices amounted to R6.9 billion in 2017/18.
- Late payments have the potential to run SMMEs out of business and result in fruitless and wasteful expenditure due to interest on overdue accounts.
- The Department of Roads and Transport has expressed its intention not to renew the interprovincial Moloto Road Bus contract for 2018/19, currently extended up to 30 September 2018. Irregular expenditure of R2.1 billion has been incurred in 2017/18, mainly related to the extension of bus contracts. The province intends to surrender the Moloto Road Bus contract back to the National Department of Transport (NDOT).
The provincial preliminary expenditure stood at R61.8 billion or 98.7 percent of the total adjusted budget of R62.6 billion. Overall the province underspent by R829.6 million mainly on goods and services and payments for capital assets which reflects R305.4 million and R314.8 million respectively. In terms of value the underspending was mainly in the departments of Health, Education and Public Works representing R236.6 million, R199.3 million and R135.5 million, respectively and other departments added together only make up to R258 million.
The Province budgeted to source additional R1.1 billion in 2017/18 from its own revenue, but adjusted downwards their budget to R1.3 billion and ended up with revenue collection of R1.3 billion at the end of the financial year. The main sources of provincial own revenue are mainly motor vehicle license fees, health patient fees, casino taxes, horse racing taxes, and liquor license fees. On aggregate the Province over collected own revenue by R20 million in the 2017/18 financial year.
The following provincial departments are the main contributors to the over collection of own revenue: department of Transport collected R502.9 million, Provincial Treasury collected R346.3 million, Education collected R63 million, and Public Works, Roads and Infrastructure collected R71 million, while Health under collected by R10.5 million and Environmental and Tourism under collected by R16.7 million. The Province attributed the revenue collection challenges to the delays in accounting of revenue collected, poor collection of traffic fines, accumulation and slow recovery of Motor Vehicle Fees debts by Municipalities, and under collection of patient fees.
The Province reported that major challenges were still occurring at the Department of Health. They are faced with a challenge of the high prices provided by the National Department of Health and not allowing the Province to procure medical supply’s directly from the service providers at a lower cost. The Road Agency Limpopo (RAL) has over committed on its budget by over R800 million which remains a major challenge.
The Province reported the following areas which remain the focus of improvements:
- Reductions of unauthorized, irregular, wasteful expenditure which ultimately will have a positive outcome in audit report through strengthening and effectiveness of transversal functions forum.
- Consequences management will be implemented in areas that reflects negligent and corrective measures will be implemented for improvements in discharging responsibilities.
The National Treasury identified the following:
- Total accruals and payables not recognised amounted to R1.3 billion in 2016/17 which has serious implications for emerging businesses.
- Accumulated unauthorised expenditure was sitting at R461 million in 2016/17, whilst irregular expenditure amounted to R4 billion (Department of Education R2 billion, Department of Health R1.1 billion).
- Accumulated fruitless and wasteful expenditure amounted to R263 million in 2016/17.
- The major risk in the department is the continuous high accruals which consume a substantial amount in the following year’s budget. The Department has experienced an increase in its accruals and payables not recognised from R775 million in 2015/16 to R1.050 billion in 2016/17, which translate to 35.5 per cent.
- The highest spending item of the total provincial budget is CoE at 80 per cent and therefore putting pressure on Goods and Services.
- National Health Laboratory Services gatekeeping has been introduced in October 2017 with a saving of R795 million to date. More savings could be realised.
- Inefficiencies with regard to management of committed overtime and sessional doctors, and
- Whilst medico legal claim is generally a problem in this sector, it’s rising with a contingent liability of R3.6 billion (15 February 2018) compared to R2.1 billion at 31 March 2017. And R26.7 million was paid in the current year.
The Mpumalanga Province tabled a total adjusted budget of R45.1 billion in 2017/18, comprising of the equitable share and the conditional grants. The preliminary budget outcome shows that the Province has spent R44.6 billion, 99 per cent. The following provincial departments managed to spend their entire budget during the 2017/18 financial year, Cooperative Governance and Traditional Affairs, Culture, Sports and Recreation, and Human Settlements.
The Province has collected R2.4 billion in the first two years of the 2017 MTEF period, R1.1 billion in 2016/17 and R1.3 billion in 2017/18. An additional revenue amounting to R383 million has already been raised from 2017/18 over-collection as well as investment that will mature on 28 February 2019. R198 million owed by municipalities is being pursued hence the own revenue target will be revised upwards during the adjustment period in November 2018. The Provincial Treasury is working closely with Departments of Health and Community Safety, Security and Liaison to improve the revenue collection for the Province. A methodology has been agreed upon with the Department of Community Safety, Security and Liaison to collect outstanding motor vehicle licensing fees.
The consolidated debt book has decreased from R408.144 million in 2016/17 to R397.740 million in 2017/18 and this represents a 3 per cent decrease. The main contributing Departments on the debt book are Education and Health. The main item that contributed to the outstanding debt is staff debt at R215.661 million. This debt line item consists of current and ex-employees’ various types of debts. The Department of Health has R193.055 million staff debts. The Provincial Treasury has indicated that mechanisms are in place to assist the provincial departments in terms of recovery of the staff debt.
The Province reported that they had 10 municipalities that owed it outstanding license fees and that they have appointed collecting agents. All 10 municipalities have been engaged and reconciliations are being finalised.
The accruals and payables decreased by 11 per cent between 2016/17 and 2017/18, from R1.5 billion down to R1.3 billion. The bulk of accruals in the Province in 2017/18 fall within the 30 days’ period. The main contributor of accruals and payables are the departments of Health with R851 million; Department of Community, Safety Security and Liaison as well as Culture, Sport and Recreation. All these accruals and payables are not cash-backed.
The Province reported that, the irregular expenditure grew from R4.5 billion in 2014/15 to R10.9 billion in 2016/17. The 2017/18 disclosures have not been audited yet and are subject to change during the audit process.
The National Treasury identified the following:
- The Department of Health should improve its planning and budgeting for medicines and medical supplies as these items are usually overspent on.
- Accruals on medicine create enormous pressure on the current and future budgets. Accumulated accruals increased from R661.6 million in 2015/16 to R1.4 billion in 2016/17.
- Accumulated unauthorized expenditure increased to R200.7 million, and irregular expenditure still awaiting condonation amounts to R6.7 billion, in the Department of Health.
- There were 539 accumulated medico-legal claims as at August 2017, with a total cost of R5.2 billion.
- Mid-year projections seem to lack credibility as the province projects to massively overspend in September 2017/18 by R1.2 billion and underspend at financial year end by R484.9 million.
- There are challenges with Infrastructure delivery particularly in the departments of Education and Health due to slow capacitation of infrastructure units with DORA posts.
- Public Works and the provincial departments whose projects it implements, are embroiled in continuous conflict as they do not assume mutual responsibility for non-performance regarding infrastructure projects
- Instability in leadership, prolonged vacancies and breakdown in internal controls were major reasons for qualified audits in most departments. Supply chain / procurement management are also still identified as major challenges responsible for most qualified audits.
- Cash management remains a challenge especially against the backdrop of the high levels of accruals while having substantially large Paymaster General (PMG) balances.
10.Free State Province
The Free State Province was allocated a total adjusted budget of R33.16 billion in 2017/18, comprising of equitable share and the conditional grants. The preliminary budget outcome shows that the Province has spent R33 billion, 99.6 per cent. The Province underspent its 2017/18 adjusted budget by R134.4 million.
The Province budgeted to source additional R1.1 billion in 2017/18 from its own revenue, and managed to over collect by R11.8 million. Not included in this amount due to time constraints was an amount of R30 million received by the Provincial Department of Health from the Lesotho Government at the end of March 2018. The main sources of provincial own revenue are mainly motor vehicle license fees, casino taxes and horse racing taxes.
The province had a negative cash balance of R353 million at the end of the 207/18 financial year. Average monthly cash balance has deteriorated over the past three years and needs urgent attention.
The province reported underspending of R134 million for 2017/18 but has accruals and payables of more than R2.3 billion reflected in the projected shortfall as at 31 December 2017 which stood at R2.1 billion. Accruals and payables has increased by R484 million (26 per cent) from 2016/17 to 2017/18. The main departments responsible for high accruals and payables are Education, Health, Public Works and Police, Roads and Transport. The Office of the Premier has outstanding payments on transfers and subsidies for local and international bursaries of R82 million.
The National Treasury identified the following:
- The Department of Health has high personnel underspending due to a significant reduction of non-clinical staff, but offset by overspending on outsourced services for support and clinical staff.
- Goods and services has significant overspending and account for the bulk of accruals and payables.
- Improvement is needed in management of claims against the state including medico legal claims. Contingent liabilities are estimated at R1.84 billion of which the bulk relates to cerebral palsy cases. A total of 70 new claims were received for 2017/18 to the value of R582 million, of which 12 claims amounting to R21.5 million were paid.
- The Department of Education budget shortfall coupled with high accruals causes persistent overspending on personnel and transfers to schools.
- Accruals and payables for 2016/17 were R431 million and increased to R439 million in 2017/18. Accruals and payables are mainly for goods and services and transfers and subsidies.
- Cash shortage affects spending on key goods and services items, e.g. underspending on Learner Teacher, Support Material of 59 per cent.
- Section 21 schools also owe municipalities for services rendered.
11.Kwa-Zulu Natal Province
The Province was allocated a total adjusted budget of R116.941 billion in 2017/18, comprising of equitable share and the conditional grants. The preliminary budget outcome shows that the Province has spent R116.3 billion, 99.4 per cent, resulting in under-expenditure of R689.9 million at year-end or 0.6 per cent under-spent. The Health Department under-spent by R19.2 million, and department of Education over-spent by R76.4 million.
The aggregated unaudited revenue collected by provincial departments amounted to R3.3 billion compared to the final appropriation of R3 billion, thus showing an over-collection of R296.1 million or 9.7 per cent. The main contributors for the provincial over-collection are Provincial Treasury reflecting an over-collection of R122.2 million, Human Settlements department reflecting an over-collection of R56.8 million, Transport department reflecting an over-collection of R42.6 million, Health department reflecting an over-collection of R37.3 million, and the Office of the Premier reflecting an over-collection of R24.4 million.
The accruals and payables for Kwa-Zulu Natal province have decreased marginally from 2016/17 to 2017/18 with a decrease from R3.8 billion to R3.2 billion.
National Treasury identified the following challenges:
- Weak supply chain and procurement systems in the Department of Health, which led to the intervention by the Provincial Treasury. Other challenges in health include poor maintenance of the medical equipment; lack of Human Resource Management strategy; exodus of critical clinical personnel such as Oncologists; difficulty in attracting and retaining critical skills and vacant senior positions. These challenges in turn led to high medico-legal claims.
- Accruals in the Department of health amounted to R1.3 billion in 2016/17. In an event that 50 per cent of medical litigation cases are successful, the Department will need an estimated R9.1 billion to cover potential liabilities.
- In the Department of Education, there is a need to improve cash management; timely transfers to schools; pay service providers on time; follow funding norms and standards. Failure to address cash management issues might compromise the delivery of this service.
- The remuneration of Izinduna which amount to R799 million, over the 2017 MTEF has put strain on the Province. COGTA had to find 50 per cent of the cost within its baseline while all other departments had to proportionately fund the remaining costs.
- Cross Cutting issues include delays in filling vacant posts, with the exception of critical posts in Education and Health, all other posts must be approved jointly by Office of the Premier and Provincial Treasury.
- In total, the province has underspent compensation of employees’ budget by R499 million in 2017/18. Irregular expenditure stood at R19.7 billion as at end of 2016/17; which the accruals amounted to R4.2 billion.
12.1The Committee noted, with appreciation, that the majority of provinces have been implementing the economic growth and development strategies over time, to stimulate economic growth; create jobs and generate much needed revenue.
12.2The Committee specifically noted progress made with the establishment of the Tubatse and Musina Special Economic Zones (SEZs) in Limpopo province, economic developments with the COEGA Industrial Development Zone (IDZ) in the Eastern Cape and Nkomazi SEZ and the Komatipoort project in Mpumalanga Province.
12.3The Committee has noted that Mpumalanga Economic Growth Agency (MEGA) gets allocated a larger proportion of the provinces’ transfers budget, for operations and that this money is spent mainly on compensation of employees.
12.4The Committee remains concerned that persistent underspending on capital infrastructure and poor maintenance of economic and social infrastructure in some provinces may negatively affect economic growth, particularly investment and the tourism industry.
12.5The Committee noted that the majority of provinces maintained positive fiscal positions in the previous financial year.
12.6The Committee noted, with appreciation, the own revenue generation efforts made by some provinces. These include the research commissioned by the Eastern Cape province to identify alternative sources of revenue; adequate fiscal space created by KZN Province which cushioned it during the drought disasters and efforts made by some provincial departments of health to appoint clerks to collect own revenue.
12.7The Committee noted, the Provinces are not able to fully spend the additional amounts approved by the National Treasury during the budget adjustment process.
12.8The Committee remains concerned about a continued trend of failure by provincial departments to pay invoices on time and the fact that the value of accruals continues to increase.
12.9The Committee has noted, in the majority of provinces, a continued trend of irregular, fruitless and wasteful expenditure. Some provinces appoint consultants to investigate the Auditor General’s audit findings and that is unacceptable.
12.10The Committee noted that municipalities in some provinces have invested monies meant for delivery of services in the VBS Mutual Bank. It is a matter of concern to the Committee that this practice occurred despite National Treasury’s guidelines discouraging it.
12.11The Committee noted that most provincial departments of Health and Education budgets are under serious pressure and that affects performance. The provinces need to develop action plans to address service delivery challenges.
12.12The Committee remains concerned about the provincial departments’ poor spending on capital infrastructure, particularly on delivery of schools, clinics, hospitals and roads, given current backlogs.
12.13The Committee noted with concern, that the Limpopo Department of Health got rid of expired drugs worth R6 million due to poor pharmaceutical depot, poor planning and poor management.
12.14The Committee remains disappointed by continued high Medico legal claims in the provincial departments of Health, particularly in the Eastern Cape, KZN and Gauteng Provinces, with no sufficient budget to address it.
12.15The Committee noted the “Izinduna” unfunded mandate in KZN Province and the implications it has on the provincial departmental budgets.
12.16The Committee noted with concern the trend of provincial departments and municipalities to transfer funds to implementing agents, which includes the municipalities, the Department of Public Works and in some instances the public entities.
12.17The “fiscal dumping” of the Human Settlements Development Grant in the last quarter of the financial year is also a serious cause for concern.
12.18The Committee noted that leadership instability compromises timely delivery of services and in some instances shifts responsibility and accountability.
13.1In the next engagement, the MECs of Finance in each Province have to report progress made in implementation of growth and development strategies in the past five years. The reports should indicate return on investment on money spent, in terms of contribution to GDP growth, number of jobs created against jobs lost, value of investment attracted and the revenue generated.
13.2In terms of the provincial growth and development agencies, most of which are funded by government, the Committee urges the MECs of Finance to report on these agencies’ expected self-sustainability timelines.
13.3The Committee urges the relevant Provinces establishing SEZs and IDZs to plan and budget appropriately for potential increase in demand for social services from the neighbouring countries. Limpopo Province should report progress made in appointing managers for operationalizing their SEZs.
13.4As previously recommended, provinces should continue to identify alternative sources of own revenue and report progress made to the Committee. The provincial departments of Health in particular should remove constraints to revenue collection and improve their IT systems.
13.5The Committee recommends that National Treasury should review the criteria it uses to approve the province’s budgets during the annual adjustment process. The approval of budgets and roll overs should take into consideration past spending trends, current spending capacity, the additional amounts requested and the remaining time in the financial year to spend.
13.6The Committee recommends that each province should report on progress made in implementing action plans to address AG findings, particularly on irregular, fruitless and wasteful expenditure. Provinces must further report on action taken to implement consequence management. Consideration should be given to the Public Audit Amendment Act (PAAA) and the Public Finance Management Act (PFMA).
13.7As previously recommended, the provinces should pay their suppliers on time, ensuring that accruals are cash backed and are not escalating. Provinces must report on efforts made to address accruals, in the next engagement.
13.8The Committee requires the Provincial Treasuries to report on actions to hold those responsible for investing the municipal funds in the VBS Bank. The report should be provided to the Committee within 30 days after the adoption of the report by the National Council of Province.
13.9The National and Provincial Treasuries should ensure that the departments’ budgets adequately for operationalisation of the infrastructure delivered.
13.10The Committee urges the provincial departments of Education and Health and the provincial treasuries to be cognisant that efforts to reduce personnel spending do not compromise the services delivered.
13.11The Limpopo Province should report progress made in implementing an action plan to improve the monitoring of when medication and drugs will expire to avoid wastage.
13.12National Treasury and the departments of Health should assist in holistically addressing the medico legal claims challenge. The affected provinces should address this matter and report quarterly on it, learning best practices from each other.
13.13As previously recommended, Provinces should improve their planning, budgeting, reporting, monitoring and evaluation and oversight to improve governance.
13.14Provinces should consider utilising the services of the Anti-Corruption Task Team to enforce compliance with the PAAA and the PFMA, implement consequence management, fast track cases under investigation and recover money from officials found guilty of financial misconduct.
13.15The Committee recommends that the National and Provincial Treasury as well as provincial and National COGTA should resolve the “Izinduna” challenge and report progress made during the January 2019 engagement with the Committee.
13.16With regards to the Human Settlement Development Grant in particular, the departments should improve alignment of the budgets spent with the housing outputs delivered. National Treasury and the Human Settlements Departments should review the effectiveness of the Housing delivery model and report progress made to the Committee.
13.17Provincial Oversight structures need to take appropriate action to ensure that irregular, wasteful and fruitless expenditure is properly investigated and there is consequence management.
13.18The Accounting Officers should ensure that the Annual Performance Plans are aligned to the National Development Plan.
Report to be considered.
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