ATC121119: Report of the Select Committee on Finance on the Expenditure Review for the 2011/12 Financial Year and First Quarterly Budget Performance Reports for the 2012/13 Financial Year by Provincial Treasuries, 16 November 2012

NCOP Finance




The purpose of this report is to give feedback to the Select Committee on Finance following the public hearings conducted with the Provincial Treasuries of KwaZulu-Natal, Free State , Gauteng , Mpumalanga , Eastern Cape , Northern Cape , North West , and the Western Cape .

The hearings were held on 14 August 2012 at the Southern Sun Cape Sun Hotel and on 29 August 2012 at Parliament of South Africa. The purpose of the hearings was to engage the Provincial Treasuries on their respective plans and/or systems to deter fraud and corruption in their provincial departments.

Firstly, the report discusses the presentations made by the Provincial Treasuries on overall expenditure of their respective provincial departments for the previous financial year, 2011/12 followed by the budget performance during the first quarter of 2012/13. These presentations largely cover the provincial revenue composition; expenditure review and mechanisms to deter fraud and corruption including risk management plans, Supply Chain Management policies and governance issues. Secondly, the observations and findings made by the Committee are summarised and recommendations are made.


2.1 KwaZulu Natal

2.1.1 Provincial revenue

KwaZulu Natal (KZN) Provincial Treasury (PT) reported that the actual receipts for the financial year 2011/12 amounted to R79.647 billion compared to final appropriation of R78.879 billion, resulting in a surplus of R768.486 million. The Equitable Share (ES) forms the bulk of the provincial receipts, contributing 79.8 per cent of proportion of the total provincial revenue in 2011/12 financial year.

The unaudited actual figures show that the Province received R13.348 billion (16.8 per cent) Conditional Grant (CG) funding, which was a shortfall of R3.49 million compared to the final appropriation. The PT attributed the shortfall to the fact that not all Expanded Public Works Programme (EPWP) Incentive and Social Sector grants funding was transferred following poor spending of these grants. Therefore, the National Department of Public Works reduced the final appropriation by R55 million against the Devolution of Property Rate Funds Grant for provinces from KZN and allocated that amount to other provinces. Consequently, a second adjustments estimate was tabled in the Provincial Legislature on 9 March 2012.

The provincial own revenue made up the balance of 3.4 per cent of the share of the total provincial receipts in 2011/12. The Province expected to collect own revenue of R1.943 billion in the beginning of the financial year but actually collected R2.715 billion (R772 million more). The PT over-collected own revenue of R280.405 million in interest earned on positive cash balances resulting from the improvement of the funds in the Pay Master General ( PMG) and Intergovernmental Cash Coordination (IGCC) accounts.

The PT further indicated that the abovementioned accounts have been cash positive since May 2010 due to cost-cutting and tight cash management in the Province. The following provincial departments also contributed to revenue over-collection, Human Settlements R268.032 million; Transport R201.534 million; Education R34.27 million and the Office of the Premier R30.118 million. However, the departments of Economic Development and Health collected less revenue than initially planned, R45.099 million and R19.8 million respectively.

During the first quarter of 2012/13, the actual revenue received amounted to R635.071 million, which was 11.6 per cent higher than projected. Therefore, it is highly likely that the Province would collect about R18.456 million more than the budget estimate for the current financial year . The only Department that expects to significantly under-collect its revenue at the end of the financial year is the Department of Economic Development and Tourism. The PT accounts for a larger proportion of the projected over-collection, due to higher than anticipated collection in respect of interest from the IGCC and PMG accounts.

2.1.2 Provincial Expenditure

According to the PT, the aggregated actual expenditure for the financial year 2011/12 amounted to R78.649 billion compared to the final appropriation of R78.332 billion, resulting in over-expenditure of R317.462 million . The current payments represented the largest proportion at 78.8 per cent, followed by transfers at 12.2 per cent and capital payments at 9.1 per cent.

The departments of Education and Health significantly over-spent their 2011/12 budgets by R572.216 million and R122.022 million, respectively and so did the Department of Transport (by R11.811 million). In contrary, the following departments under spent, PT by R119.699 million; Sport and Recreation by R50.497 million; Co-operative Governance and Traditional Affairs (COGTA) by R50.091 million, Economic Development and Tourism (DEDAT) by R43.39 million, Human Settlements by R41.417 million and Public Works by R20.335 million.

The aggregated projected expenditure for the year amounts to R84.196 billion compared to the budget of R83.629 billion, resulting in a projected over-expenditure of R566.608 million by end of the financial year. The departments of Education and Transport expect to overspend their budgets by R503.102 million and R72 million, respectively. The following departments also anticipate a shortfall on their appropriated budgets, Public Works R15.425 million; PT R5.936 million, COGTA R5.1 million and Social Development R34.880 million by the end of the financial year.

2.1.3 Plans to deter fraud and corruption

The following measures are in place to deter fraud and corruption in the KZN Province :

· Implementation of the Biometric Access Control System in all provincial departments. The system provides a much better audit trail, requires the use of a finger print to log onto Basic Accounting System (BAS) and Personnel Salary System ( PERSAL); and it replaces the password system. The system is expected to eliminate password irregularities and fraud.

· Supply Chain Management (SCM) review : Developed a draft Provincial Conflict of Interest Policy and guideline whereby all Government employees would be required to declare their business interests, irrespective of their levels.

· Conduct of SCM officials : The PT and the National Treasury (NT) were improving the assignment of SCM delegations to the appropriate level. The Accounting Officers were instructed to implement clear SCM Decision Frameworks. PT will enforce compliance through audits and regular SCM compliance reviews including the enforcement of the code of conduct for SCM practitioners.

· Cover quoting: PT discussed this loophole with NT and an amendment will soon be made to the Public Finance Management Act (PFMA) to define the conditions under which deviation may occur rather than leaving it to the Accounting Officers or authorities to decide.

· Inflating prices of bidders in collusion with SCM officials: The Province is in a process of developing a daily updated price-list of all goods and services that Government procures. The p urpose of this project is to introduce price bench-marking in the procurement of goods and services, t o curb the problem of price inflation by those that do business with government. This process would further ensure that all Government institutions pay market related prices, and that PT also enforces the use of transversal or general period contracts in the Province.

· Tender Appeals Tribunal: These are already in place for all provincial departments and have reversed several cases. The tribunal affords the public the opportunity to question any process in the awarding of tenders. These are also being implemented in municipalities .

· Revamping of database : PT was in the process of cleaning up and establishing a new single suppliers’ database for all provincial departments and municipalities to promote accountability and compliance, suppliers had been asked to re-register. The database was now linked with external organizations (South African Revenue Service, Company Intellectual Property Registration Office ( CIPRO), and Construction Industry Development Board (CIDB ). The system will identify service providers with poor track records or those under investigation and would be used for black listing. According to the PT, the project has been completed and system came alive as of September 2010.

2.2 Free State

2.2.1 Provincial Revenue

The PT reported that the 2011/12 adjusted budget amounted to R24.203 billion. The ES amounted to R18.154 billion (75 per cent), conditional grants amounted to R5.277 billion (22 per cent), and the own provincial revenue R771.6 million (3 per cent). The 2012/13 allocated budget amounts to R24.870 billion of which, the ES amounted to R18.531 billion (75 per cent), conditional grants amounted to R5.520 billion (22 per cent), own revenue amounted to R819.3 million (3 per cent). This composition of revenue remains similar between the two financial years.

2.2.2 Provincial Expenditure

In terms of economic classification, current payments amounted to R18.913 billion (76.0 per cent) of which Compensation of employees amounted R15.1 billion (60.7 per cent), payments capital assets amounted to R2.4 billion (9.8 per cent), and transfer payments amounted to R3.5 billion (14.2 per cent).

2.2.3 Plans to deter fraud and corruption

Measures to deter fraud and corruption in the Free State Province include:

· Capacity building: PT provided training for Chief Risk Officers (CRO) to manage fraud in the work place and issued guideline on Fraud prevention and detection. In addition to that, a concept Fraud prevention policy was developed and provided to all the departments and their entities. Key Performance Indicators were further developed to manage fraud.

· Governance: All provincial departments formed risk management committees and appointed CRO’s. The composition of Audit Committees for departments had been reviewed in 2011/12. Findings showed that no Government officials serve on Committees. Furthermore, Finance and SCM Delegations were developed to prescribe minimum level for delegations and ensure segregation of duties. These delegations were also issued for all transactions on the Transversal systems, namely, BAS, PERSAL and Local Government Information Systems ( LOGIS).

· Procurement : The departments’ report on expansion and variations of contracts to PT, submit procurement plans in April each year and report monthly on deviations. Certain goods are procured through a transversal contract arranged by the PT.

· Cash Management and Payments: PT handles all registration of banking details and second verification is done by the bank before it was captured on systems. Only PT prints cheques and processes hand written cheques. All supplier payments above R1 million and PERSAL payments above R5 million are verified and approved by PT before implementation by the bank. PT approves all Business online and Foreign Exchange Payments before they can be processed and further verifies all signing authorities on quarterly basis. Payment control checklists were also being implemented.

2.3 Gauteng

2.3.1 Provincial Revenue

During the financial year 2011/12, the Province received a budget of R65.6 billion. ES accounted for R50.9 billion and Conditional Grants represented R14.7 billion. All the ES and conditional grant monies were transferred except for R9.8 million in respect of the Gauteng Department of Education’s HIV/Aids (Life Skills) conditional grant, which was withheld by the NT. The Province strictly ring-fenced infrastructure and conditional grants to ensure that these grants were used for intended purposes.

2.3.2 Provincial Expenditure

PT indicated that the following departments recorded overspending on their 2011/12 adjusted appropriations: Health (R426.5 million) of which R884.9 million was compensation of employees and R558.3 million in goods and services category. This was offset by R627 million under-spending in the payments for capital assets’ category and the balance in transfers and subsidies.

An over-expenditure of R730.2 million in respect of Compensation of Employees (CoE) was reported in 2011/12. A significant under-spending was observed for the following departments, Roads and Transport R573 million, of which R511.4 million occurred under the goods and services category, R75.8 million in payments for capital assets category and offset by R14.6 million over-expenditure in CoE. The department of Education under spent its budget by R315.4 million of which R147.7 million was in goods and services category, R119.1 million in payments for capital assets (R119.1 million), R15.1 million in CoE and R33.5 million in transfers and subsidies.

The under-spending was also reported for the department of Local Government and Housing (R130.7 million) of which R63.9 million in CoE, R16.7 million in goods and services and R41.6 million in machinery and equipment. The department of Social Development (R99.4 million), R57.5 million in goods and services, R59 million in transfers and subsidies to non-Profit Institutions, offset by R16.6 million over expenditure under CoE.

Of the total 2012/13 appropriation of R69.3 billion, year-to-date expenditure stood at R18 billion, or 26 per cent. Most departments’ expenditure was significantly lower than or marginally close to the 25 per cent threshold, except for Infrastructure Development, which spent R426.2 million (31 per cent) of its 2012/13 budget.

The significant slow spending was seen in the following departments, Local Government and Housing by R649.2 million of the R4.7 billion 2012/13 allocation. The Gauteng PT by R58.6 million of the R428.9 million allocation spent, and Office of the Premier by R44.5 million of the R236 million 2012/13 budget spent.

2.3.3 Plans to deter fraud and corruption

The Province deters fraud and corruption as follows:

· Anti-Corruption Strategic Framework : The Framework was revised in 2009 and approved by Executive Council (EXCO) in 2010. It was then launched at the 2010 Gauteng Anti-Corruption Summit. The summit passed numerous Anti-Corruption resolutions which were signed by the Provincial Government, organised business and civil society representatives. Th e revised framework consists of eight strategic objectives, each with its own key performance indicators, activities, outputs, responsible department and timeframes. These objectives aim to promote ethical procurement, build a social compact against corruption and fight nepotism, amongst others.

· Governance Structure : The Provincial Anti-Corruption Coordinating Committee (PACCC) is the governing structure where all provincial departments report. The PACCC in turn reports to the Provincial Anti-Corruption Forum (PACF) which consists of Organised Business, Civil Society Representatives, and Provincial Executive Members.

The Province identified some achievements that improved management of theft and corruption. These achievements included, launch of an anti-fraud awareness DVD which provided clear fraud reporting guidelines and details of the National Anti-Corruption Hotline; Visible Anti-Corruption poster campaign launched in all provincial buildings; Furthermore, risk management units were established in all departments to increase awareness of fraud risk, and to report such accordingly. PT reported that these measures h eightened fraud risk awareness and helped reduce year on year fraud risk incidents and losses.

2.4 Mpumalanga

2.4.1 Provincial Revenue

Mpumalanga Province received a total adjusted budget of R29.967 billion during the 2011/12 financial year. The bulk of the provincial budget was allocated to the provincial departments of Education and Health, which received R13.2 billion and R7.548 billion, respectively.

2.4.2 Provincial Expenditure

At the end of the financial year the Province managed to spend 98.1 per cent of the allocated budget. Most of the departments spent above the average spending of the Province except for the Department of Health and the Provincial Legislature, which spent 95.7 percent and 91.9 percent, respectively.

The Department of Social Services recorded 97.7 per cent (R21.206 billion) expenditure while non-social services spent R8.186 billion or 99.1 per cent of its adjusted budget of R8.257 billion. None of the departments recorded over-expenditure.

In terms of economic classification the Province reported that it has spent R17.004 billion on CoE; R5.930 billion on goods and services; and R2.709 billion on payments for capital assets.

The Province has an annual budget of R30.968 billion for the 2012/13 financial year. As per the trend, the bulk of the budget is allocated to the departments of Education and Health, which received R13.983 billion and R7.544 billion, respectively. The Province is projecting an overspending of R55.693 million by the end of the financial year. The over expenditure is mainly attributed by Non-Social services departments. However, significant overspending has been recorded in the departments of Agriculture, rural development and land administration and DEDAT, which project to overspend by R34.378 million and R19.792 million, respectively.

At the end of the first quarter, the Province managed to spend 22.9 per cent of its total budget. Most of provincial departments spent almost 20 per cent except for Social Development which spent 16.9 per cent and Culture, Sport and Recreation having spent only 15.8 per cent. Education has spent 25.2 per cent while Health has spent 20 per cent.

CoE spending stood at R4.294 billion or 23.0 per cent of the allocated budget and the Province projected to overspend in this component of the budget by R970 000. With respect to goods and services, the Province has spent R1.344 billion or 22.2 per cent. On Transfers and subsidies the province has spent R1.019 billion of the allocated R3.759 billion which is 27.1 per cent of the allocated budget. A significant under-expenditure was on payment for capital assets which was at 17.4 per cent of the allocated R2.521 billion.

2.4.3 Plans to deter fraud and corruption

Fraud and corruption is managed as follows in Mpumalanga Province :

· Rotation of the SCM officials: PT issued a circular PFMA/SCM1/2009 to all provincial departments, public entities enlisted in schedule 3C to rotate their SCM officials within the 5 sub-division of the SCM unit (Demand, Acquisition, Logistic, Performance and Disposal). The circular aims to eliminate corrupt and fraudulent practices in the public sector procurement system.

· Vetting of SCM officials: PT issued another circular to all delegated departments, public entities and municipalities to screen all officials responsible for the procurement of goods and services. The screening encourages officials not to involve themselves in corrupt practices because their individual profile will be screened. In addition to that, PT in collaboration with the Office of the Premier held an awareness workshop to capacitate officials about the importance of vetting.

· Training: PT and NT jointly provided regular training to departments, public entities and municipalities on SCM issues. As a way of increasing awareness, PT together with the University of Pretoria established a Certification Programme for a five year period to capacitate SCM practitioners from various institutions.

· Code of Ethics: PT encourages departments to set a requirement that whenever they appoint the Bid Committee members, a declaration of confidentiality and impartiality form must be signed by the member responsible in any of the three departmental Bid Committees. A number of training courses were conducted in various institutions in respect of the code of conduct to ensure compliance.

· Procurement System: A procurement system was introduced to all departments in order to promote transparency, fairness, integrity, value for money and equality in the treatment of suppliers or contracts in the procurement process. The system assists the departments to increase internal control in their procurement process in order to eliminate corrupt activities and improve efficiencies in contract management.

2.5 Eastern Cape

2.5.1 Provincial Revenue

The PT allocated the provincial departments a budget of R54.3 billion in 2011/12 financial year, an ES portion of R44.6 billion, R8.8 billion conditional grants and a revenue of R817 million was generated within the Province. The Province estimated to collected own revenue of R729.5 million but actual own revenue recorded amounted to R817.3 million, an over-collection of R87.8 million.

2.5.2 Provincial Expenditure

The Department of Health over spent by R79.7 million on CoE due to the appointment of employees without a budget; provincialisation of state aided hospitals; Occupation Specific Dispensation (OSD) carry through costs; and remnants of Human Resources Operational Project Task Team ( HROPT). The Department of Education also overspent by R29.2 million as a result of cost pressures on CoE budget; the implementation of the Court Order re-instating temporary educators, non-movement of additional educators, OSD carry through costs and remnants of HROPT . T he Human Settlements Department under spent its conditional grants allocation by R472 million (20 per cent).

According to the PT, all departments under spent on CoE due to the non-payment of the budgeted 5.5 per cent increase in Improvement in Conditions of Service (ICS) which was supposed to be paid with effect from April 2012. The wage agreement was only signed in August 2012. Failure to fill critical vacant posts also contributed to the low spending on CoE.

During the first quarter of 2012/13, the following departments under spent their allocated budgets, Education by R394.9 million; Health by R102.5 million; Human Settlements by R86 million and Economic Development and Environmental Affairs and Tourism by R83.8 million. T ransfer of funds to the Rural Development Agency of R60.6 million could not be effected due to late submission of supporting documentation by the department of Rural Development.

2.5.3 Plans to deter fraud and corruption

Plans and systems in place to deter fraud and corruption in the Eastern Cape Province include:

· Ethics and Fraud and Corruption Prevention: The Province conducts anti-corruption and ethics awareness workshops, conducts training on professional ethics in collaboration with the Ethics Institute of Southern Africa . About 600 officials had been trained at provincial and municipal level to date in sessions that included awareness on procurement fraud, tax evasion and measures needed to address these.

· Combating fraud and corruption: A Whistle Blowing Policy was developed and approved by the EXCO. The policy is consistent with the Protected Disclosure Act and Code of Ethics for the Eastern Cape Public Service. An electronic-web database was also developed through which cases reported through the National Anti-Corruption Hotline can be loaded onto the system and categorized accordingly. EXCO was considering implementing a policy forbidding public servants from trading with government. The Province made inroads at municipal level where municipalities are being assisted with the development of Fraud Risk Assessments and the development of Fraud Prevention Plans. The Province approached the Public Administration Leadership and Management Academy ( PALAMA) to assist with capacity building in this regard.

· Oversight, Transparency and Accountability: Departments submit monthly reports on incidents of financial misconduct, irregular, fruitless and wasteful expenditure in terms of the provincial accountability model to the PT. These reports are escalated to the Member of Executive Council (MEC’s) on a quarterly basis to raise accountability for possible fraud related activities . This therefore promotes reporting on these activities to different government institutions and structures such as Legislature, Parliament, Public Service Commission (PSC) and EXCO. Status reports are prepared and submitted to these structures on a quarterly and annual basis or upon request.

· Provincial Anti Corruption Forum and Council: An Anti Corruption forum was established in 2005, represented by Business, Organized labour, Religious fraternity, Public Service and members of the EXCO. The Honourable Premier appointed a member of the EXCO as political Champion and ultimately Chairperson of the Forum. T he mandate of the forum is to contribute towards the establishment of a provincial consensus through coordination of cross sectional efforts against corruption.

The abovementioned forum also advises political administration on the implementation of effective strategies to combat corruption and shares information and best practices on sectoral anti- corruption work. In addition to that, the Forum advises sectors on the improvement of sectoral anti-corruption strategies. There also exists an Anti Corruption Council which comprises of Head of Department (HOD’s); South African Police Service (SAPS); Special Investigating Unit (SIU), Public Protector, the State Security Agency (SSA) and the PSC. The Director General chairs the structure.

2.6 Northern Cape

2.6.1 Provincial Revenue

The Northern Cape Province received a total adjusted budget of R10.866 billion during the financial year 2011/12. The departments of Education and Health received the bulk of the budget, R4.11 billion and R3.011 billion, respectively.

In 2012/13, the Province got appropriated an annual budget of R11.355 billion. The key budget drivers, the Department of Education received R4.197 billion while the Department of Health got R3.121 billion.

2.6.2 Provincial expenditure

By the end of the financial year, 2011/12, the Province spent 99 per cent of its allocated budget. All provincial departments have spent more than 90 per cent except for the PT, which spent 88.5 per cent. Most of departments were close to 100 per cent spending at the end of financial year.

Overall in terms of economic classification the Province has spent R10.763 billion or 99.0 per cent of the allocated R10.866 billion adjusted budget. Spending on current payments shows that the Province has spent R7.932 billion, which is almost 100 per cent of the current payments budget allocation. R1.348 billion or 95.2 per cent of transfers and subsidies was spent and R1.481 billion or 97.7 per cent paid for capital assets

At the end of the first quarter of 2012/13, the provincial expenditure reflected total spending of 22.6 per cent. By July 2012, the Province had spent 30.5 per cent of the provincial budget. The majority of departments were slightly above 30 per cent with its expenditure performance.

The Department of Agriculture, Land Reform and Rural Development recorded significant under-spending, which was at R101.744 million or 13.9 per cent of the department’s allocated budget. Some departments have projected over-expenditure at the end of the 2011/12 financial year. At top of the list, Health projected overspending by R94.554 million and Roads and Works expected to spend R63.342 million more than its initial budget. An overall projection of the provincial overspending was R226.995 million in August 2012.

2.6.3 Fraud and corruption prevention mechanisms

After the briefing by the Northern Cape PT on their plans and/or systems in place to deter fraud and corruption in the Province, the Committee was of the view that these issues were not adequately addressed. The Committee then requested the PT to submit a written response within seven working days after the meeting.

On 07 September 2012, the Northern Cape PT provided the Committee with the written response summarised below.

The PT indicated that the short term strategy to deter fraud and corruption was to centralise within the PT, the system controllers function that authorise the creation of users for both PERSAL, BAS and LOGIS.

In addition to this, the Province was investigating the implementation of a system that would on a daily basis provide information on suppliers banking details that have changed and then investigate the reasons for change. The Province was also working on the centralisation of supply data base to improve its functionality.

In the long run the Province was working towards the implementation of the biometric system as the final solution to bring an end to fraud and corruption perpetrated using transversal government financial systems.

2.7 North West

2.7.1 Provincial Revenue and expenditure

The North West Province had a total budget of R25.036 billion for the financial year, 2011/12 .

The overall expenditure of the Province at the end of the fourth quarter of 2011/12 was R23.939 billion, which is 95.6 per cent of the adjusted budget. Low spending of 90 per cent and below was registered for the Office of the Premier, the departments of Sport, Arts and Culture, Economic Development; Environment; Conservation and Tourism, Public Works, Roads and Transport and Agriculture and Rural Development.

Highest spending was registered in the Provincial Legislature, departments of Health, Education and Training, Social Development, Women; Children and Person with Disabilities and Human Settlements; Safety and Liaison (Human Settlement Branch), all above 97 per cent.

According to the PT, under-spending in the Department of Education and Training was mainly on CoE. This was attributed to failure to appoint the Grade R teachers, instead, excess educators were trained and placed in those posts. The Department of Public Works, Roads and Transport under spent on its conditional grants, of which the Provincial Roads and Maintenance Grant ( PRMG) was R246 million. The review of the committed projects with the PRMG was only finalized in March 2012. A rollover of R107 million has been approved accordingly.

As at the first quarter of 2012/13, all the departments spent below the estimated 25 per cent threshold. The highest spending was recorded by the Provincial Legislature with 24.84 per cent and Human Settlements, Safety and Liaison (Human Settlement Branch) with 24.78 per cent. Lowest spending was registered in the Departments of Public Works, Roads and Transport with 11.58 per cent and Agriculture and Rural Development spending only 14.24 per cent of the budget.

Spending on all economic classification items was below the estimated 25 per cent with the highest spending of 23.29 per cent on CoE (R3.533 billion of the allocated budget of R15.174 billion). It appears that the bulk of the budget is actually spent more on CoE, with lack of planning, implementation and spending on core service delivery areas, such as land and buildings and goods and services categories, which all registered spending below 14 per cent.

The low spending trend by departments on these economic classification items may have a negative impact on areas such as maintenance of schools, clinics, hospitals, roads and government buildings. This might also result in under spending at the end of this financial year, particularly, on infrastructure.

The departments of Social Development, Women, Children and Person with Disabilities and Human Settlements, Safety and Liaison (Human Settlements Branch) project to overspend on their CoE budgets by R26.9 million and R20 million respectively, whilst the Department of Agriculture and Rural Development projects to under spend its budget by R7.5 million.

2.7.2 Fraud and corruption prevention mechanisms

According to the PT, the Province prevents fraud and corruption as follows:

· SCM: The Province enforces compliance through regular audits and compliance reviews; assesses delegations and segregation of duties. All service providers are registered on a Central Supplier Database and an E-Procurement tool was acquired. The automated system ensures supplier rotation. The Province issues directives to departments to rotate the SCM Officials within their SCM units, vetting of all SCM Officials, and provides frequent training to departments and Public Entities on SCM Policies and practices.

· Risk Management Units : These units were developed in the departments with the aim to increase awareness of fraud and corruption and to deter such activities.

· Municipal intervention : The Province intervenes in municipalities regarding the Annual Financial Statements, capacity building, appointments and skilling of staff through financial training.

PT conducts daily scrutiny of exceptions generated by the PERSAL system to identify any irregular payments and take necessary actions to stop the payments. Furthermore, PT imposes thresholds of approval at stages of contracting or contract administration processes and addresses the institutional weaknesses in the SCM processes through establishment of structured committees and the appointment of competent officials.

PT also encourages the departments to do a pre-employment screening thorough background checks, such as prior employment history, tertiary qualifications and memberships of professional associations of employees and contractors, service providers, etc.

2.8 Western Cape

2.8.1 Provincial Revenue and Expenditure

The Western Cape Province received an adjusted budget of R37.088 billion during the financial year 2011/12.

The Province spent R36.949 billion (99.6 per cent) of the adjusted estimate of R37.088 billion, which was R2.890 billion (8.5 per cent) more than what was spent as at 31 March 2011. The Province registered net under spending of R138.459 million (0.4 per cent). This occurred mainly in the Transport and Public Works (R45.451 million), Health (R41.147 million) and Education (R15.999 million).

The Department of Education received R13.361 billion against the revised provision of R13.377 billion while the department of Health’s budget amounted to R13.388 billion of the revised appropriation of R13.429 billion. The department of Social Development aggregate budget amounted to R1.317 billion compared to a revised provision of R1.332 billion.

The Province projected an overspending of R55.048 million comprising of the following departments, R53.664 million from Health due to the opening of beds to accommodate the shift of services to the Khayelitsha District hospital and R1.384 million from Human Settlements due to an incorrect PERSAL interface and the difference between budgeted cost of living increase and negotiated salary increase.

2.8.2 Mechanisms to prevent fraud and corruption

The Western Cape Province put in place the following measures to prevent fraud and corruption:

· Strengthening of the governance environment: This included full review of PT Instructions; development of a departmental SCM systems and delegations policy; development of Standard Operating Procedures (SOPs), transaction checklists, reporting tools, frameworks etc; Strengthened Monitoring and Evaluation (M&E) process via compliance assessment, reporting; introduced Annual Financial Governance Review and Outlook process and the introduction and use of electronic systems;

· Current Transversal Systems: The Province centralised access control and user account management; enforces the use of LOGIS for all payments for goods and services; limited payments via BAS; develop monthly expenditure reports to departments; monthly monitors personnel establishments and expenditure; expects to introduce spending analysis tool;

· Western Cape Supplier Database: The Province will only do business with registered suppliers from 1 September 2012. All suppliers’ details (tax, BEE status, conflict of interest) would be recorded on the database and would also be compared monthly with the PERSAL information; and

· E-Sourcing: The E-procurement system has been upgraded. The electronic procurement for purchases between R10 001 to R500 000 and above R500 000 had been introduced. Contract management system would still be explored.


Having considered the above issues, the Select Committee on Finance noted that:

3.1 Government departments do not draft contracts in terms of specifications that need to be followed by service providers;

3.2 The Eastern Cape and North West Provinces have adequate funding but the challenge remains how they are spending their budgets;

3.3 Most provinces had a challenge with the vetting of supply chain management officials by the National Intelligence Unit as this compromised the quality of personnel that departments employ;

3.4 Provincial Treasury of the Northern Cape did not sufficiently reflect on their plans or systems to deter fraud and corruption;

3.5 Some provinces had projected over-expenditure at the end of the financial year of 2012/13, while they do not have plans to address such estimates; and

3.6 Provinces lack management frameworks for managing people working on systems such as BAS, PERSAL, and LOGIS in government departments.


Based on the findings and observations mentioned above, the Select Committee on Finance recommends as follows:

4.1 Government departments should consider drafting contracts themselves so that service providers sign what the departments requires from them;

4.2 The National Intelligence Agency should consider taking at least 21 days when it comes to the vetting of officials working on the supply chain management for departments;

4.3 Provinces should look at implementing the use of a biometrics system in preventing fraud and corruption within government departments;

4.4 Provinces should consider developing management frameworks for managing people working on systems such as BAS, PERSAL, and LOGIS in government departments;

4.5 Western Cape and Northern Cape Provincial Treasuries should develop plans to address the findings by the Auditor General, particularly on the supply chain management matters. This plan should be developed within 3 months after the adoption of this Report by the House;

4.6 Units that are responsible for awarding of Government contracts should frequently check the expiry date of contracts to avoid the wasteful expenditure that is taking place;

4.7 Free State Provincial Treasury should monitor and verify spending performance trends by the department of Health and Education as this is of great concern to the Committee;

4.8 Northern Cape Provincial Treasury should monitor the overall spending of the Department of Education and Health;

4.9 Northern Cape Provincial Treasury should develop proper plans to deter fraud and corruption in the Province within three months after the adoption of the report by the House; and

4.10 Provincial Treasuries should consider adopting the KZN model of preventing fraud and corruption when developing plans for their respective Provincial Governments.

Report to be considered.


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