ATC121026: Budgetary Review And Recommendations Report Of The Standing Committee on Finance on The Performance of the National Treasury, dated 25 October 2012

BUDGETARY REVIEW AND RECOMMENDATIONS REPORT OF THE STANDING COMMITTEE ON FINANCE ON THE PERFORMANCE OF THE NATIONAL TREASURY, DATED 25 OCTOBER 2012

The Standing Committee on Finance, having assessed the performance of the National Treasury for the 2011/12 financial year, reports as follows:

1. Introduction

In terms of section 5(2) of the Money Bills Amendment Procedure and Related Matters Act No. 9 of 2009, committees must annually submit budgetary review and recommendation reports for tabling in the National Assembly for each department. A budgetary review and recommendation report must provide an assessment of a department’s service delivery performance given available resources, an assessment on the effectiveness and efficiency of a department’s use and forward allocation of available resources, and it may include recommendations on the forward use of resources.

2. The Mandate and Role of the Committee

The Standing 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. The mandate of the Committee is conferred to it by the Constitution, legislation, the standing rules or a resolution of a House, including consideration and report on the following:

• The national macro-economic and fiscal policy;
• Amendments to the fiscal framework, revised fiscal framework and revenue proposals and Bills;
• Actual revenue published by the National Treasury; and
• Any other related matter set out in the Money Bills Amendment Procedure and Related Matters Act No. 9 of 2009.

Furthermore, the mandate encompasses the committee’s function to legislate, conduct oversight on the Executive’s actions and its entities. The Money Bills Amendment Procedure and Related Matters Act No. 9 of 2009 make provisions for a procedure for this committee to amend money bills.

3. Methodology.

In complying with section 5(2) of the Money Bills Amendment Procedure and Related Matters Act, Act No 9 of 2009, the Standing Committee on Finance held a meeting on the 2011/12 Annual Reports of National Treasury. The Office of the Auditor-General was also invited to give input during the budget review and recommendation report process. The report therefore reflects key issues that were identified by the Committee.

4. Mandate and role of National Treasury

The National Treasury is responsible for managing South Africa ’s national government finances, and draws its mandate from Chapter 2 of the Public Finance Management Act, Act No 1 of 1999, together with Chapter 13 of the Constitution, 1996. National Treasury continued to monitor the impact of the global financial crisis and was able to find appropriate responses (interest rates were cut five times, increased the pace of government expenditure etc).

The budget process was enhanced as a result of the Money Bills Amendment Procedure and Related Matters Act, (Act 9 of 2009) and National Treasury’s capacity was increased by creating a division handling international and regional economic policy.

The legislative mandate of the National Treasury includes developing and prescribing measures to ensure equitable resource allocation and proper expenditure control in each sphere of government, as well as to ensure that this function is executed in a transparent manner. The National Treasury does this by advocating and ensuring adherence to the following guidelines and procedures:

· Generally Recognised Accounting Practice.

· Uniform Expenditure Classifications.

· Uniform treasury norms and standards.

As the custodian of state funds, the National Treasury is therefore responsible for coordinating departments’ budgets in all spheres of government. The Treasury’s role in this regard is to ensure that appropriated funds are transferred to departments for implementation of government priorities, and that government expenditure is continuously monitored.

5. Strategic Overview of National Treasury

The National Treasury is responsible for managing South Africa ’s national government

Finances, and draws its mandate from Chapter 2 of the Public Finance Management Act, together with Chapter 13 of the Constitution.

National Treasury contributes directly to outcomes 4 (Decent employment through inclusive economic growth ), 9 ( A responsive, accountable, effective and efficient local government system ) and 12 ( An efficient, effective and development oriented public service and an empowered, fair and inclusive citizenship ).

During the reporting period, National Treasury continued to respond to the 2008 recession with appropriate fiscal and other measures to promote sustainable growth. A framework was also developed which provided for a shift in expenditure planning so that budgeting occurred by function rather than by department.

One of the main focus areas of National Treasury is to promote greater accountability and transparency in government. National Treasury developed fraud detection guidelines and issued instruction notes strengthening supply chain management practices.

Macroeconomic forecasts projected GDP growth of 2.7 per cent in 2012, set to rise to around 4 per cent by 2014. The International Monetary Fund (IMF) latest growth forecast is 2.6 per cent this year and 3.0 per cent next year. Inflation moderated during the course of the year and is expected to remain within the target band. Investment was supported largely by government and public corporations.

Two credit rating agencies have downgraded South Africa ’s sovereign rating citing concerns relating to the sustainability of the growth trajectory due to the slow pace of policy implementation and growing income inequality. These agencies kept SA on a negative outlook.

South Africa ’s fiscal policy was anchored on the principles of counter-cyclicality, sustainability and intergenerational fairness. The current financial year will see a bigger focus on value for money and the shifting of resources from consumption towards infrastructure investment, and support for economic competitiveness. There remains a need to strengthen efficiency in public spending, eliminate wastage, improve the alignment between allocations and policy priorities, and root out corruption.

6. Analysis of Expenditure Reports and Budget allocation

The National Treasury indicated that the total appropriation for the Department amounted to R23.8 billion (2010/11: R50.2 billion) and is divided into operational budget, transfers and payments for financial assets. The National Treasury’s operational budget amounted to R1.5 billion (2010/11: R1.4 billion) and comprised of R601 million (2010/11: R553 million) for compensation of employees, R899 million (2010/11:R810 million) for goods and services and R21 million (2010/11: R16 million) for acquisition of capital. The transfer budget of R21.6 billion (2010/11: R28.1 billion) includes transfers to provinces, municipalities, universities, departmental agencies and foreign institutions, as well as payment of post-retirement benefits for specific category of former employees and members of the liberation movement.

A virement of R58.2 million from programme 2: Economic Policy, Tax, Financial Regulation and Research (R18 million) and programme 5: Financial Systems and Accounting (R40.2 million) was made to curb programme 6: International Financial Relations expenditure for transfer payments for the Common Monetary Area Compensation.

The total appropriation for the Administration programme amounted to R281 million (2010/11: R277 million). Expenditure incurred on compensation of employees was R117 million (2010/11: R109 million), goods and services R129 million (2010/11: R134 million), transfers R2.4 million (2010/11: R1.5 million) and capital expenditure R6 million (2010/11:R4 million).

The total appropriation for the Economic Policy, Tax, Financial Regulation and Research programme amounted to R210 million (2010/11: R106 million). Expenditure incurred on compensation of employees was R56 million (2010/11: R51 million), goods and services R63 million including a once-off adjustment to the payment of bank charges to the South African Reserve Bank (2010/11: R21 million), and transfers of R20 million due to an increase in the annual funding of Economic Research Southern Africa (2010/11: R13.5 million) and capital assets R408000 (2010/11: R351000).

The total appropriation for the Public Finance and Budget Management programme amounted to R210 million (2010/11: R187 million). Current expenditure incurred totalled R196 million (2010/11: R160 million) and mainly comprised compensation of employees R131 million (2010/11: R110 million) and goods and services R30 million (2010/11: R18 million). Transfers amounted to R35 million (2010/11: R31 million).

The total appropriation for the Asset and Liability Management programme amounted to R826 million (2010/11: R20.8 billion). Total expenditure incurred amounted to R822 million (2010/11: R20.8 billion) and mainly consisted of compensation of employees R53 million (2010/11: R47 million), goods and services R18 million (2010/11: R19 million) and payments for capital assets R289 000 (2010/11: R598 000). Payments for financial assets amounted to R750 million (2010/11: R20.8 billion).

The total appropriation for the Financial System and Accounting programme amounted to R608 million (2010/11: R639 million). Current expenditure incurred totalled R505 million (2010/11: R559 million) and comprised compensation of employees R126 million (2010/11: R108 million) and goods and services R304 million (2010/11: R386 million). Capital expenditure amounted to R1 million (2010/11: R2 million). Transfer payments amounted to R73 million (2010/11: R62 million).

The total appropriation for the International Financial Relations programme amounted to R877 million (2010/11: R565 million). Total expenditure incurred amounted to R858 million (2010/11: R559 million) and comprised of compensation of employees R18 million (2010/11: R16 million), goods and services R8 million (2010/11: R10 million). Transfer payments amounted to R832 million (2010/11: R532 million) for economic research

The total appropriation for the Civil and Military Pensions, Contributions to Funds and Other Benefits programme amounted to R3.8 billion (2010/11: R2.7 billion). Expenditure for the period under review amounted to R3.3 billion (2010/11: R2.7 billion) which comprised of civil pensions and other contributions R3.1 billion (2010/11: R2.5 billion) and military pensions and other contributions R181 million (2010/11: R165 million). Compensation of employees amounted to R1 million (2010/11: R0) and goods and service amounted to R64 million (2010/11: R38 million).

The total appropriation for the Technical Support and Development Finance programme amounted to R4.6 billion (2010/11: R13.3 billion). Expenditure for the period under review amounted to R2.9 billion (2010/11: R10.5 billion) which comprised of compensation of employees R36 million (2010/11: R34 million), goods and services R118 million (2010/11: R67 million). Transfer payments amounted to R2.7 billion (2010/11: R10.4 billion).

The total appropriation for the Financial Intelligence and State Security programme amounted to R3.8 billion (2010/11: R3.5 billion) which comprised of transfers made to the Secret Services R3.6 billion (2010/11: R3.3 billion) and Financial Intelligence Centre R137 million (2010/11 R181 million).

The National Treasury indicated that the Department under spent by R2.5 billion mainly due to the Employment Creation Facilitation Fund. Reasons for under spending include the following:

· The Jobs Fund requires the submission of project proposals (applications) over the term of the project. Upon receipt, all applications are assessed on a competitive basis against the Fund’s funding criteria;

· The Jobs Fund operates as a Challenge Fund as it has an open architecture and predetermined assessment criteria;

· Grants are allocated by an independent Investment Committee only if the application is competitive and the funding criteria are met;

· The Fund cannot predetermine with accuracy how many applications it will receive; nor can it determine the quality of the applications; the value of the requests; nor the disbursement schedule associated with these projects;

· Funds cannot be transferred to the Development Bank of Southern Africa (DBSA) before projects have been approved by the Investment Committee; and

· Grants cannot be disbursed to applicants until they have met the conditions precedent set by the Investment Committee and until they have signed contracts with DBSA.

The National Treasury reported that the total revenue received during the reporting period amounted to R3.4 billion (2010/11: R3.3 billion) and consisted of sales of goods and services of R71 million (2010/11: R51 million) fines, interest and dividends of R2.9 billion (2010/11: R2.6 billion) and other recoveries amounting to R0.5 million (2010/11: R0.7 million). The report further cited that the local and foreign assistance received in cash during the reporting period amounted to R6 million (2010/11: R11 million). Expenditure incurred amounted to R4 million (2010/11: R12 million). Other funds amounting to R0.2 million (2010/11: R34.2 million) were transferred to external spending agencies on behalf of the Reconstruction and Development Fund.

The appropriation statement includes a summary of information in the Appropriation and Adjusted Appropriation Acts, which relates to the allocations of the various programmes and sub-programmes and is classified between current payments, transfers and subsidies, payment for capital asset as well as a summary of economic classification.

An analysis of National Treasury’s Appropriation statement, which includes all programmes, indicated that there was marginal under spending in all programmes.

There appears to be cases of virements for the 2011/12 fiscal year. As explained by PFMA, this means cases occurred during the year where National Treasury utilised savings in the amount appropriated under main division within its vote towards defrayment of expenditure under another main division of its vote. The following programmes experience a shift in virements:

· Administration - R21 000 from the payment for capital assets classification;

· Technical Support and Development Finance Programme - R21 000 to the payment for capital assets classification;

· Economic Policy, Tax, Financial Regulation and Research - R18 million from current payment classification;

· Financial System and Accounting programme - R40.2 million from current payment classification; and

· International Financial Relations programme - R58.2 million to transfers and subsidies classification.

Table 1 below represents National Treasury’s expenditure per programme.

Table 1: Expenditure per programme: 2011/12

Programmes	Budget allocation
R’000	2011/12 Budget	2011/12 Outcome	Variance	per cent variance
1. Administration	281, 067	254, 534	26, 533	9.4
2. Economic Policy, Tax, Financial Regulation and Research	210, 364	140, 467	69, 897	33.2
3. Public Finance and Budget Management	209, 878	196, 429	13, 449	6.4
4. Asset and Liability Management	825, 860	821, 907	3, 953	0.5
Operational budget	75, 860	71, 907
Transfer to Land Bank	750, 000	750, 000
5.Financial Systems and Accounting	608, 020	504, 861	103, 159	17
Operational budget	534, 416	431, 662
Transfers	73, 604	73, 199
6. International Financial Relations	876, 839	857, 787	19, 052	2.2
Operational budget	34, 120	25, 930
Transfers	842, 719	831, 857
Sub-total	3, 012, 028	2, 775, 985	236, 043	7.8
Operational budget	1, 597, 899	1, 363, 188	234, 711	14.7
Transfer budget	22, 241, 572	19, 998, 860	2, 242, 712	10.1
Operational vs Transfer	7.2 per cent	6.8 per cent	10.5 per cent
7. Civil and Military Pensions, Contributions to Funds and other Benefits	3, 776, 909	3, 314, 173	462, 736	12.3
8. Technical Support and Development Finance	4, 641, 940	2, 863, 296	1, 778, 644	38.3
Operational budget	178, 590	169,060
Transfers	4, 463, 350	2, 694, 236
9. Revenue Administration	8, 653, 573	8, 653, 573	0
10. Financial Intelligence and State Security	3, 755, 021	3, 755, 021	0
Grand Total	23, 839, 471	21, 362, 048	2, 477, 423	10.4

Source: National Treasury (2012)

7. Programme Analysis

It is in the interest of good ethical reporting to present accurate, fair and correct information regarding the National Treasury’s annual performance against its planned objectives as set out in the different documents to Members of Parliament and the public at large. The purpose of this section is to draw attention to targets that were not met during the 2011/12 fiscal year. The focus is on output performance, targets, actual performance and reasons why the targets were not met.

7.1 Economic policy, tax, financial regulation and research

Within the Financial Sector Policy sub-programme, National Treasury had set a target to implement the proposal published in the February 2011 policy document entitled “ A safer financial sector to serve South Africa better ”. This target was not achieved. However, the interagency committee is currently drafting a roadmap document, which clarifies technical components of the reform. The Department has also not achieved the target to submit a Carbon Tax policy paper to Cabinet for approval in September 2011. The annual report has indicated that the policy paper is being finalised but will only be submitted in the new financial year.

7.2 Public Finance and Budget Management

Within the Intergovernmental Relations sub-programme, National Treasury had set a target to finalise the amendment to the Municipal Fiscal Powers and Functions Act (No. 12 of 2007). However, this process has not commenced. The Annual Report has further set a target to prepare background research work in terms of annual reporting of municipal non-financial information, with specific focus on quality and scope. The research work is still under way and no timeframe has been provided.

7.3 Assets and Liability Management

Within the State-owned Entity Financial Management sub-programme, National Treasury had set a target to determine a benchmark for appropriate target structure for 12 State-owned Enterprises (SOEs). This target was not met; as the Department only piloted 6 SOEs.

7.4 Financial Accounting and Reporting

Within the Supply Chain Management Policy sub-programme, National Treasury had set a target to roll out strategic sourcing principle to 42 medium-capacity municipalities. There is no report-back on this target, instead the Department indicates an achieved target relating to the training of officials on the strategic sourcing principle, which is not related to the target. The Annual Report has indicated further that the department had set a target to develop Terms of Reference for the comprehensive review in consultation with the National Economic Development and Labour Council. The target was not met as the Department has only commenced with the consultation with the relevant stakeholders. In addition, the Department had set a target to renew 32 transversal-term contracts. However, only 3 transversal-term contracts were renewed, 1 service contract was extended and 12 pharmaceutical contracts were transferred to the national Department of Health.

7.5 International Financial Relations

Through this division, National Treasury made significant strides in advancing the interests of SA in bilateral and multilateral engagements, with a strong focus on economic development of the African continent. Some of the highlights in 2011/12, included:

• Engagements dominated by an uncertain global economy, especially the euro debt crisis;
• Actively engaged in a lobby for the reform of the international financial architecture;
• Strengthened the operations of the SA, Nigeria, Angola constituency in the World Bank, and of the African constituency in the IMF;
• Strengthened cooperation with other departments to enhance advancement of SA policy imperatives in BRICS and G20;
• Forged relations with a selected number of BRICS, G20, African and Nordic Finance Ministers;
• Engagement in Africa premised on economic opportunities, institutional reform; and outreach;
• Participated in development of regional economic integration strategies and infrastructure financing mechanisms;
• Negotiated changes to SACU revenue sharing formula with BLNS countries;
• Supported AfDB constituency office, and facilitated the opening of a Regional Resource Centre of the AfDB; and
• Strengthened PFM outreach programmes through CABRI.

7.6 Technical and Management Support and Development Finance

Within the Technical and Advisory Support sub-programme, National Treasury had set a target to fund 100 Neighbourhood Development Partnership Grant Programmes. This target was not met and only 95 Neighbourhood Development Partnership Grant Programmes were funded during the period under review.

7.7 Administration

Within this programme provides leadership, strategic management and administrative support is provided to National Treasury department.

National Treasury managed to increase awareness on risk management and corruption. National Treasury was the first national department to close its financial books for the year. Strategic sourcing and its economies of scale was yielding desired cost reduction and through a secured environment, National Treasury ensured there were no leakage of economic or financial policy matters

8. Human Resources

National Treasury had a total staff complement of 1 150, of which 55 per cent were female, and 80 per cent black. At senior management level, 57 per cent were black and 43 per cent were female.

National Treasury highlighted that the key challenge was to reduce the vacancy rate and improve turnaround times for the recruitment process. The current vacancy rate was at 9.5 per cent (121 positions) with a recruitment turnaround time of 20 weeks. In addressing the challenge around improving the turnaround time, discussions were held with the South African Qualifications Authority (SAQA) to address the verification process that takes longer than expected. The termination rate has also increased compared to the previous financial year, which has had an impact on the vacancy rate and the replacement rate.

Of 239 offers made, 223 accepted while 16 declined, with r easons for declining offers relating to salaries, counter offers, and other developmental career choices.

National Treasury filled a total of 125 critical skills positions during the financial year. In partnership with Disabled People South Africa, National Treasury was increasing attraction of candidates with disabilities. National Treasury achieved 1.04 per cent of the 2 per cent target.

National Treasury’s employee lifestyle management programme was utilised by 87.3 per cent of employees, with 68 per cent of directors and 85 per cent of Chief Directors participating in the Leadership development programme.

National Treasury also highlighted that the focus shifted to internal hiring with 34 per cent of positions being filled by National Treasury employees. The other challenge is to increase gender representation of female to meet the national target of 50 per cent, as well as the recruitment of employees with disabilities, which is currently 1.3 per cent vs. the 2 per cent national target.

9. Report of the Auditor General

The Auditor-General expressed an unqualified audit opinion with the following findings on the financial position of the Department:

9.1 Material impairments

The AG’s report indicated that the National Treasury had receivables for other debtors (as a result of beneficiaries investigated by independent consulting firms on Programme 7: Civil and Military Pensions, Contributions to Funds and Other Benefits) totalling R17, 165 million at 31 March 2012. This amount was disclosed as irregular expenditure in the prior year’s financial statements.

9.2 Material under spending of the vote

The AG’s report indicated that the department has materially under-spent the budget by R2.477 billion.

9.3 Report on other legal and regulatory requirements

· Predetermined objectives Usefulness of information

The framework for Managing Programme Performance Information (FMPPI) requires that the time period or deadline for delivery be specified. A total of 42 per cent of the targets relevant to all programmes were not time bound. Even though management was aware of the requirements of the FMPPI, they did not apply the principles contained in the FMPPI correctly.

9.4 Compliance with the laws and regulations

• Strategic planning and performance management

The AG’s report indicated that the strategic plan did not include measurable objectives, expected outcomes, programme outputs, indicators (measures) and targets of the institution’s programme 8, including sub-programmes and activities, particularly the Employment Creation Facilitation Fund (i.e. Jobs Fund) as required by Treasury Regulations 5.2.3(d).

• Annual financial statements, performance and annual report

The financial statements submitted for auditing were not prepared in all material respects in accordance with the requirements of section 40(1)(a) and (b) of the PFMA. Material misstatements of current assets, liabilities and disclosure items identified by the auditors were subsequently corrected, resulting in the financial statements receiving an unqualified audit opinion.

• Procurement and contract management

The AG’s report cited that the employees of the Department performed remunerative work outside their employment in the Department without written permission from the relevant authority as required by section 30 of the Public Service Act (No. 103 of 1994). The report further indicates that sufficient appropriate audit evidence could not be obtained to prove that goods and services of a transaction value above R500 000 were procured by means of inviting competitive bids, and that deviations were only approved by the Accounting officer if it was impractical to invite competitive bids, as required by the National Treasury Regulations 16A6.1 and 16A.6.4.

• Human resource management and compensation

The AG’S report cited that a Human Resource Plan was not in place as required by Public Service Regulation 1/III/B.2(d).

9.5 Internal Control

• Leadership

Management did not adhere to internal policies and procedures and as a result there were instances of non-compliance with the PFMA and TR. In addition, no guidance was given on the development and implementation of an Annual Performance Management System, which contributed towards the targets in the Strategic Plan not being time bound.

• Financial and performance management

The AG report cited that the financial statements contained material misstatements that could have been avoided had there been effective review processes in place. This is a recurring matter and the action plan in place to address this matter seems to be inadequate, as management is not monitoring the effectiveness of this action plan.

• Investigations

The AG report indicated that a forensic investigation was conducted by Internal Audit and an independent consulting firm into allegations received from the Public Service Commission (PSC). The investigation was initiated based on the allegations of procurement irregularities, use of public resources for private purposes and leave irregularities. The official was suspended and disciplinary processes were followed. Disciplinary processes concluded that the official was guilty of these allegations, and the official was dismissed with effect from 20 February 2012. A criminal case has been opened with the South African Police Services (SAPS).

An investigation is being conducted by the PSC based on an allegation received relating to the irregular appointment of service providers by the National Treasury. The National Treasury has supported the investigation, which is still with the PSC. The investigation was still ongoing at the reporting date.

• Performance audit

During the year under review, a performance audit was conducted on the readiness of government to report on its performance. The focus of the audit is on how government institutions are guided and assisted to report on their performance, as well as the systems and processes that they have put in place. The audit is currently in the reporting phase and the findings will be reported in a separate report.

10. Deliberations

Following the interaction with the National Treasury, the Standing Committee on Finance made the following comments:

• The Committee noted the training of councillors as one of National Treasury's major achievements.
• The Committee wanted to know if there was follow-up training, and whether it was sufficient, and if there was an assessment tool.
• The Committee noted that National Treasury targeted 100 partnership development grant programmes, but had met only 95, and wanted to know what happened to the other five programmes.
• The Committee wanted to know the progress of National Treasury’s intervention in the provinces, and when National Treasury intended to withdraw.
• The Committee wanted to know how far had National Treasury progressed in its focus on value for money and shifting of resources from construction to infrastructure.
• A question was raised to ascertain whether the procurement office was now established.
• The Committee noted that t he debt service costs of 2.6 per cent of the GDP was a worry, and wanted to know how much of this 2.6 per cent was used to service the 'borrowed loan'.
• With reference to the establishment of the Government Technical Advisory Centre, the Committee wanted to know how this centre was different from the technical and management support and development finance that was already in place within National Treasury.
• The Committee raised concern with reference to the deviations and virements on the payment for capital assets of R21 million under Programme 8, and wanted to know why the virements were made to the capital assets.
• The Committee noted that South Africa was declining faster than the rest of the world, especially as to the sustainability of the state finances as reflected by the credit ratings downgrade, and wanted to know National Treasury's approach to the credit ratings.
• The Committee wanted to know what bail-out mechanisms existed for South Africa, if any.
• The Committee noted that South Africa was growing at only 2 per cent and wanted to know what measures were in place to accelerate this growth.
• The Committee noted hold-up of the youth wage subsidy at NEDLAC, and wanted to know why this particular proposal need consensus, as other proposals emerged from NEDLAC without consensus.
• The Committee noted the detail given on the under spending on the jobs fund, and noted the cost per job was slightly higher, but it was still relatively good value. Of concern, however, was that National Treasury underspent by R2.5 billion on this item.
• The Committee noted, in terms of the framework for managing programme performance, 42 per cent of targets were not time-bound, and expressed concern as it came from a department like National Treasury.
• In terms of the R15 billion guarantee for the Development Bank of Southern Africa (DBSA), the Committee wanted to know how long this guarantee was in place. The Committee also wanted to know what the risk was if the R15 billion guarantee might be called upon from National Treasury.
• The Committee wanted to know, as to the Alexkor contingent liability of R1.19 million, would National Treasury give guarantees to private mining companies that competed with Alexkor.
• The Committee noted the R60 billion loan to Eskom, of which R20 billion was added last year, and wanted to know if this amount was recoverable.
• In terms of investment by government and public corporations in infrastructure, the Committee requested whether National Treasury could provide detailed figures in this regard.
• The Committee asked for more information in terms of the R2.4 billion under spending.
• The Committee noted that there had been interventions in terms of Section 216(2) of the Constitution, whereby the funds of municipalities could be withheld in terms of the Division of Revenue Act (DoRA) allocation, and commented that it would be strengthened even further by the establishment of the procurement office.
• The Committee noted that there was a draft construction procurement standard for use by provincial treasuries to improve compliance by implementing departments, and wanted to know what time frames there were for implementation.
• The Committee noted that within human capital, there was a need to account for youth employment in the percentages, as well as the number of women and the number of blacks employed.
• The Committee noted that the inability to meet the target of 2 per cent of people with disabilities, and wanted to know why it was so difficult to employ people with disabilities.

11. Responses by National Treasury

With regard to questions raised and comments made by the Standing Committee on Finance, the National Treasury responded/commented as follows:

• National Treasury reported that t he Limpopo intervention had worked from a financial point of view, and that the provincial treasury now had a new head of department. There were some new staff members appointed in key positions, but some staff still needed to be appointed, to ensure proper cash management and budgeting. The Minister offered to give the Committee, together with the National Council of Provinces (NCOP) Committee, a more comprehensive report in due course.
• National Treasury indicated that it would not withdraw from Limpopo, because current situation was not sustainable. There were about 30 cases with the South African Police Service (SAPS), where charges had been laid. There were another 30 cases where disciplinary action needed to be taken.
• Over the past three years National Treasury had gone quite far in introducing the concept of savings, of reprioritisation within departments, and of contributing to a pool from which other programmes could actually be serviced. Work was being done by the National Treasury and the Presidency: Department of Performance Monitoring and Evaluation to establish which would indicate what programmes in Government could be slowed down, which programmes could be cut, and which programmes could be deferred.
• National Treasury indicated that t he 2.6 per cent of GDP for the debt service cost was in line with projections. As the debt levels rose, as projected, then the debt service cost would increase. Foreign investors provided support; currently they took up about 32 per cent of the bond portfolio, and this had helped to drive down the cost of borrowing. When Moody's Investors Services downgraded South Africa's credit rating, the interest rate increased by about 20 basis points. This pushed up the cost of debt. Fluctuations or weaknesses of the exchange rate increased the cost of servicing foreign debt. There was also a floating rate portfolio which was linked to inflation.
• In terms of the procurement office, National Treasury indicated it had done an internal reorganisation. The central procurement office was not being created from the very beginning, but it was required to serve a very different purpose from what National Treasury had for some time.
• National Treasury reported that the Infrastructure Delivery Improvement Programme (IDIP) was part of the Public Private Partnership (PPP) that provided support and financial management programmes.
• In terms of the capital assets, National Treasury had not taken money from capital assets, but it was a shift. Money had been taken from Programme 1 – Administration and moved to Programme 8. It was purely a matter of reprioritisation within the National Treasury.
• In terms of training of councillors, National Treasury indicated that it would give councillors a file on the Municipal Finance Management Act (MFMA), and a guide on what to do and what not to do. National Treasury recognised the need for an intense programme of training and induction. In terms of follow-up, the National Treasury had a MFMA Coordinators Forum, which was placed in each of the treasuries.
• National Treasury indicated that it took the issues raised by the Auditor-General very seriously. National Treasury had responded to each of the issues raised, in terms of ensuring that they were addressed going forward.
• National Treasury reported that it was not a big capital-spending department, and that the bulk would be transfers. The greater part of the under spending related to what were small project.
• In terms of Eskom, National Treasury indicated that the R20 billion allocated last year was part of the R60 billion allocation. The loan was drawn down in three phases of R10 billion, and a further R30 billion in 2010/11; and then the final R20 billion in 2011/12. These loans could be described as a R60 billion subordinated loan, which meant that it would rank behind Eskom's other debt that it had issued. In the event that Eskom was liquidated, the other bond issuers would be paid out first, and only thereafter the subordinated loan.
• In terms of the R15 billion in respect of the DBSA, this referred to an increase in the callable capital. This was done to improve the DBSA's capacity to lend.
• The R119 million for Alexkor was a contingent liability, not a guarantee. It had arisen because there was a land claim on Alexkor's assets. A deed of settlement had been agreed between the community, Alexkor, and Government. In respect of that there was a settlement that had to be made. In the 2012/13 budget National Treasury had made allocations to Alexkor to settle this outstanding liability as well as other outstanding amounts owed by Alexkor or Government.
• In terms of credit ratings, South Africa did not extend borrowing frivolously, it did so to ensure that the country did not suffer the worst when the recession hit. South Africa would not have borrowed this money as it had a 5 per cent growth rate, revenue was flowing in, and Government could not spend all the money that it had in 2008 before the recession hit.
• In terms of the Youth Wage Subsidy, National Treasury indicated there were political processes under way. It would compromise both business and labour simply to go ahead and implement the Youth Wage Subsidy. Government preferred the route of consensus.
• National Treasury indicated it would be useful for the Committee to receive a briefing on the matrices and methodologies of the credit rating agencies.

12. Conclusion and Recommendations

Based on the deliberations with the National Treasury, the Standing Committee on Finance recommends that the Minister of Finance should ensure that:

12.1 The National Treasury provides the House with a report on loans, guarantees, contingent liabilities, callable capital, promissory notes, and other forms of financial assistance extended to the parastatals, and the effect on state debt if they are called-in in their entirety, within 90 days of the adoption of this report by the House.

12.2 The National Treasury provides the House with a comprehensive report on their interventions into provinces within 90 days of the adoption of this report by the House.

12.3 The National Treasury provides the House a report with proposals to strengthen National Treasury’s human resource system within 90 days of the adoption of this report by the House.

12.4 The National Treasury provides the House with a detailed report on interventions to rectify errors highlighted by the Auditor General, including:

• The fact that 42 per cent of targets are not time bound in the Framework for Managing Programme Performance Information;
• The finding that employees performed work outside without written permission;
• The insufficient evidence that bids were used for tenders of R500 000.00;
• That the human resource plan is not in place;
• The non-compliance with Public Finance Management Act (PFMA) and Treasury Regulations; and
• That the Annual Financial Statements had material misstatements that could have been avoided if there was an effective review mechanism in place.

This report should be submitted within 90 days of the adoption of this Report by the House.

12.5 The National Treasury ensures that all programmes have measurable objectives and expected outcomes.

12.6 The Standing Committee on Finance further recommends that the Minister of Finance and the Minister in the Presidency: Performance Monitoring and Evaluation, ensure that the National Treasury and Statistics South Africa (Stats SA), report on a quarterly basis the progress made in reprioritising programmes within all national departments to indicate which programmes slowed down and which programmes were deferred.

Report to be considered.