ACT111012: Report Fourth Quarter Expenditure Report for the 2010/11 financial year

Standing Committee on Appropriations

Report of the Standing Committee on Appropriations on the Fourth Quarter Expenditure Report for the 2010/11 financial year, dated 12 October 2011.

Having received a briefing from the National Treasury on the fourth quarter expenditure report for the 2010/11 financial year and engaged selected departments on their respective financial performance for the period under review, the Standing Committee on Appropriations reports as follows:

1 Introduction

As required by the Money Bills Amendment Procedure and Related Matters Act, No.09 of 2009, the National Treasury tabled the Fourth Quarter Expenditure Report before the Standing Committee on Appropriations (the Committee) for its consideration. This report provided preliminary expenditure trends for the end of the 2010/11 financial year. A number of issues, including those listed below, emanating from the 2010/11 fourth quarter expenditure report require the attention of the Executive:

· a large number of vacancies in government departments;

· unsatisfactory spending on conditional grants;

· slow spending on capital payments; and

· the persistent culture of rolling over allocated funds.

This report is presented during a period when the government is faced with a number of challenges such as an increased unemployment rate, backlogs in the provision of services, community protests, challenges in the health care and education sectors and landlessness. These wide ranging challenges require prudent spending and effective mechanisms to ensure that tangible outputs are achieved through proper planning and budget implementation. This report focuses on the spending trends by different departments and highlights in detail some challenges that still exist in the implementation of budget allocations for the year under review.

2 Aggregate allocations and Expenditures per Economic Classifications 2010/11.

In aggregate, national departments were allocated an adjusted budget of R466.3 billion in the 2010/11 financial year excluding direct charges. Of the appropriated funds, R133.3 billion (28 per cent) was allocated to current payments, R301.8 billion (64.7 per cent) to transfers and subsidies, and R10 billion (2.1 per cent) to capital expenditure. The preliminary figures indicate that national departments had spent R456 billion (98 per cent) as at the end of the fourth quarter. As a result, a R10 billion under expenditure was recorded at the end of the 2010/11 financial year. A year-on-year comparison indicated an increasing trend in the under expenditure level when compared to R5.1 billion under expenditure in the 2009/10 financial year.

The departments had under-spent in all economic classifications but reported different levels of under-spending. The departments reported an overall expenditure of R129.4 billion (97.1 per cent) on current payments, R44.4 billion or 94 per cent on goods and services and R84.8 billion or 98.7 per cent on compensation of employees with R296.1 billion (98.1 per cent) on transfers and subsidies as well as R10.1 billion on capital expenditure (100.7 per cent).

The Committee analysed the performance of seventeen (17) departments for the fourth quarter of the 2010/11 financial year. These are listed in Table 2 below. In addition to this analysis, hearings were held with five departments which were selected on the basis of their respective levels of under or over expenditure. These were the departments of Women, Children and People with Disabilities, Basic Education, Economic Development, Human Settlements and Trade and Industry. This report is thus presented in two parts:

Part A: Those departments with which the Committee engaged

Part B: Those departments whose performance was analysed through the Committee’s internal processes

The year-on-year spending comparison across departments reflected a declining trend. The departments had spent 98.0 per cent in the 2010/11 financial year, 98.75 per cent in the 2009/10 financial year, and 99.05 per cent in the 2008/09 financial year. At the end of the 2010/11 financial year, 15 of the 17 departments had spent between 66.8 and 97 per cent while two departments had spent above 100 per cent (in the range of 103 and 105 per cent). The selected 15 departments recorded an under-expenditure of R8.1 billion at the end of the financial year. Table 1 below provides the analysis of spending trends per economic classification for the 17 selected departments.

Table 1: Aggregate Expenditure Trends per Economic Classifications

R’000	Available budget 2010/11	Actual expenditure 4th Quarter 2010/11		Under/over Expenditure
R’000	Available budget 2010/11	Rands	(%)	Rands	(%)
Current Payments	133 311 615	129 494 348	97.1	3 817 267	2.9
Compensation of Employees	85 959 776	84 819 396	98.7	1 140 380	1.3
Goods and Services	47 326 012	44 482 966	94.0	2 843 046	6.0
Other	25 827	191 987	743.4	-166 160	-643.4
Transfers and Subsidies	301 896 884	296 119 748	98.1	5 777 136	1.9
Payments for Capital Assets	10 047 305	10 116 835	100.7	-69 530	-0.7
Total	466 338 623	456 834 032	98.0	9 504 591	2.0

National Treasury (2010)

Table 2: Departments identified through the Committee’s internal processes

Department (R’000)	Available Budget 2010/11	Actual expenditure		Under/over expenditure
Department (R’000)	Available Budget 2010/11	Rands	(%)	Rands	(%)
Communication (Vote 26)	2 138 001	1 427 684	66.8	710 317	33.2
Economic Development (Vote 27)	449 840	401 061	89.2	48 779	10.8
Basic Education (Vote 14)	6 171 999	5 515 077	89.4	656 922	10.6
Public Works (Vote 6)	7 364 797	6 730 135	91.4	634 662	8.6
Trade and Industry (Vote 35)	6 194 208	5 796 395	93.6	397 813	6.4
Arts and Culture (Vote 13)	2 441 245	2 248 819	92.1	192 426	7.9
International Relations and Cooperation (Vote 5)	4 715 818	4 390 604	93.1	325 214	6.9
National Treasury (Vote 9)	50 209 414	47 260 386	94.1	2 949 028	5.9
Correctional Services (Vote 20)	15 427 465	14 698 843	95.3	728 622	4.7
Water Affairs (Vote 37)	8 203 193	7 940 641	96.8	262 552	3.2
Health (Vote 15)	21 661 512	20 918 579	96.6	742 933	3.4
Human Settlements (Vote 30)	16 291 759	16 092 094	98.8	199 665	1.2
Public Service and Administration (Vote 11)	658 653	628 165	95.4	30 488	4.6
Public Enterprise (Vote 10)	555 549	537 214	96.7	18 335	3.3
36 Transport (Vote 36)	25 289 083	25 075 045	99.2	214 038	0.8
Women, Children and People With Disabilities (Vote 7)	106 190	109 929	103.5	-3 739	-3.5
Home Affairs (Vote 4)	5 834 390	6 163 400	105.6	-329 010	-5.6

National Treasury (2010)

PART A

2.1 Department of Women, Children and People with Disabilities (Vote 7)

The Department was allocated R106.1 million for 2010/11. At the end of the financial year, the Department had spent R109.9 million or 103.5 per cent. This constituted R3.7 million (3.5 per cent) over spending at the end of the financial year. Goods and Services contributed excessively to over expenditure on Current Payments and the overall departmental over spending.

Current Payments had an allocation of R47.6 million and the Department spent R57.7 million (121.1 per cent) at the end of the financial year. This shows an over expenditure of R10 million more than the allocated funds. Goods and Services had an allocation of R26.5 million but R38.6 million (146 per cent) was spent at the end of the financial year resulting in a R12.2 million or 46 per cent per cent over expenditure for goods and services. Compensation of employees was allocated R21.1 million but only R18.9 million or 73 per cent was spent resulting in R2.2 million under expenditure.

Table 3: Budget Analysis on Goods and Services

Goods and Services	Adjusted budget	Actual expenditure (April 10- Mach 10)	Budget Spent
Goods and Services	Adjusted budget	Amount	(%)
Travel and Subsistence		23 411	88
Venues and Facilities		3 593	14
Promotional Items		3 814	14
Catering		2 611	10
Cell Allowances		1 100	4
Others		4 101	16
Total	26 512	38 630	146

National Treasury (2010)

As shown in Table 3 above, Goods and Services spent R38.6 million (146 per cent) of its R26.5 million adjusted budget. This indicates an over expenditure of R12.2 million at the end of the financial year. The expenditure was disproportionately skewed towards travel and subsistence where R23.4 million (88 per cent) of the overall expenditure was spent. This was an indication that travelling was a major cost driver in the Department’s budget. This raises major concerns when compared to other departments. Worth noting is the fact that government priorities were not reflected in the expenditure outputs of the Department. A further concern was that these items did not form part of core departmental operating expenses. However, these expenditures made up more than 100 per cent of Goods and Services budget.

It is important to note that these expenditure patterns were captured from the Presidency’s suspense account since the Department’s financial system was only finalised in November 2010. The Department had failed to provide reasons to the National Treasury for the over expenditure in its budget and failed to provide performance and expenditure reports for projects and programmes that were budgeted for and undertaken during the financial year 2010/11.

The Department informed the Committee that the 2010/11 financial year had been particularly difficult for it since there was no Strategic Plan in place. This hampered the formulation of the Department’s budget for the 2010/11 financial year. It was reported that the Department had only been fully functional since July 2011; hence it could not comply with the provision of section 32 of the Public Finance Management Act, No 1 of 1999 for the period under review. From the 2011/12 financial year and beyond the Department committed itself to comply with the prescripts of the Public Finance Management Act. In respect of the budget for the National Disability Programmes, it was stated that all the smaller budgets would be consolidated in future. This matter was addressed in the Department’s Annual Performance Plan for the 2011/12 financial year.

In respect of the high expenditure on international travel, the National Treasury stated that it had some discussions with the Department and proposed that the size of the delegations to international conventions be reviewed in order to cut costs. The Committee requested the Department to furnish it with a breakdown of the international travels undertaken during the 2010/11 financial year.

2.2 Department of Basic Education (Vote 14)

The Department had an available budget of R 6.2 billion of which R5.5 billion (or 89.4 per cent) expenditure was recorded at the end of the 2010/11 financial year. An under expenditure of R656.9 million (or 10.6 per cent of available budget) was thus incurred.

Current Payments had an available allocation of R1.7 billion and spent an amount of R1.1 billion or 64.0 per cent.

─ Compensation of Employees had R268.9 million and spent R252.9 million or 94.0 per cent.

─ Goods and Services had R1.5 billion and spent a total of R875.8 million or 58.5 per cent.

· Transfers and Subsidies had R4.4 billion allocation of which R4.3 billion or 99.6 per cent expenditure was incurred.

· Payments for Capital Assets had an allocation of R7.9 million and spent R6.9 million or 86.3 per cent.

Transfers and Subsidies constituted 71 per cent of the Department’s budget. This area recorded a R18.3 million or 0.4 per cent non-transferral largely due to:

· slow spending in Programme 2 (Curriculum Policy Support and Monitoring). This was attributed to the withholding of funds amounting to R15.5 million of the Technical Secondary Schools conditional grant from three provinces as a result of slow spending.

· a favourable exchange rate resulted in only 77.2 per cent transferral to United Nations Educational, Scientific and Cultural Organisation (UNESCO) for membership fees, this was due to the fluctuation in the exchange rate. This was reflected in Programme 1 (Administration).

Under expenditure on Goods and Services was due to:

· the Workbooks Project spent R166.4 million of the available R750 million budget due to savings realised in the development of the workbooks,These savings were incurred by using the in-house capacity for the design, layout and development of the literacy and numeracy workbooks for grades 1-6. (Programme 2);

· delays in filling vacant posts in the National Education Evaluation and Development Unit (NEEDU) and for the Integrated Quality Management System (IQMS). It is noteworthy that the aforementioned also attributed to slow spending under Programme 3 ( in the Compensation of Employees);

· delays in the implementation of the Annual National Assessments for grades 3, 6 and 9 that took place in February 2011 rather than October 2010 as had been initially projected (Programme 4); and

· delays in appointing a service provider to conduct a baseline study for the National School Nutrition Programme (NSNP) under Programme 5.

The Committee was informed that in order to arrive at its budget for the workbooks, the Department had done a market related study to determine what it would cost to produce these workbooks. The study revealed that printing, development, and distribution of workbooks by external service provider would cost R33 per workbook. The Department assured the Committee that its projections for in house production of workbooks for next year were accurate at R9.50 per workbook. The workbooks would be extended to grade nine. The printing and the distribution was done by external service providers. It was noted that in producing the books in-house the Department now had ownership of the copyright. The reported R9.50 per unit was for the printing and distribution of the workbooks. A three year tender was being discussed for the printing and distribution of the workbooks.

The Department reported that the variance of R183 million was the payment for workbook 2. It was noted that the project encompassed the distribution of 22 million books to 19000 primary schools across the country. An amount of R583 million was saved in respect of the workbooks. This figure included the reported saving and the commitments that were still to be paid.

The final organisational structure of the Department had been approved by the Minister of Basic Education on 24 June 2011. The Department was now in the process of populating the new structure. There were seven positions for Deputy Director-Generals (DDG’s) out of which three were vacant. Although there was an Acting Chief Financial Officer (CFO), the position remained to be filled permanently.

2.3 Department of Economic Development (Vote 27)

The Department had an available budget of R449.8 million of which an expenditure of R 401.1 million or 89.2 per cent was incurred by the end of the fourth quarter. As a result, there was an under expenditure of R48.8 million or 10.8 per cent of the available budget.

· Current Payments had an allocation of R90 million and recorded a R40.1 million or 44.7 per cent expenditure.

─ Compensation of Employees had an allocation of R57.7 million with a spending of R25.3 million or 43.8 per cent.

─ Goods and Services had a budget allocation of R32.2 million with a spending of R14.9 million or 46.3per cent.

· Transfers and Subsidies had an allocation of R355 million with a spending of R356.5 million or 100.4 per cent transferral. While Transfers and Subsidies reflected more than 100 per cent expenditure of its available budget of R355 million, it should be noted that the R3.4 million virement for Khula had not been included in the In-year Monitoring (ITM) report and the total available funds should therefore be R359 million.

· Payments for Capital Assets had an allocation of R4.8 million with a spending of R4.3 million or 90.3 per cent.

Payment for Capital Assets’ under expenditure was largely attributed to:

· Challenges regarding spending on software and intangible assets as well as the machinery and equipment components of capital payments.

· An under expenditure in Programme 4 (Economic Development and Dialogue); Programme 2 (Economic Policy Development); Programme 1 (Administration) was attributed to a large number of vacancies

The Department reported that it received an unqualified audit opinion from the Auditor General on its 2010/11 annual financial statements which was its first full year of operation. Whilst the Department’s staff grew from 18 to 79 during the 2010/11 financial year, there remained challenges with regard to the recruitment of suitably qualified and experienced staff. These challenges impacted negatively on the expenditure of the Economic Policy Development Programme of the Department which reported an R6,6 million or 39 per cent of the total adjusted budgetary allocation of R17,1 million. The slow rate of filling posts also impacted on the Economic Development and Dialogue Programme which recorded an expenditure of R455 000 or 4,3 per cent of a total adjusted appropriation of R10,7 million. The Department reported that it has requested the National Treasury to rollover 2010/11 committed but unspent funds to 2011/12 financial year, amounting to R35,050 million.

Whilst the Committee congratulated the Department on achieving an unqualified audit opinion during the 2010/11 financial year, it was still concerned about the challenges relating to the filling of critical vacant posts. These vacant posts impacted negatively on the performance of the Department and needed to be addressed expeditiously.

2.4 Department of Human Settlements (Vote 30)

The Department had an available budget of R16.2 billion and spent R16 billion or 98.8 per cent by the end of the fourth quarter. As a result, a R199.6 million or 1.2 per cent under expenditure was incurred.

· Current Payments had R585.3 million of which an amount of R441. 8 million or 75.5 per cent was spent.

─ Compensation of Employees had R250. 8 million with actual spending at R216.4 million or 86.3 per cent.

─ Goods and Services had an allocation of R334 million of which a R225.1 million or 67.4 per cent expenditure was recorded.

· Transfers and Subsidies had an allocation of R15.5 billion, recording a spending of R15.5 billion or nearly100 per cent.

· Payments for Capital Assets had a budget of R171.3 million and spent R116.7 million or 68.1 per cent.

Though the Department’s performance reflected a 100 per cent expenditure on transfers and subsidies, an under expenditure of R 1.7 million was in fact recorded on the other parts of economic classifications (current payment and capital payments). Further, the Department also recorded a notable under expenditure on various programmes (Housing, Policy Research and Monitoring; Housing Planning and Delivery; Strategic Relations and Governance). The under-expenditure in the Department was hugely attributed to vacant positions not filled; the under-spending on the Accelerated Community Infrastructure Programme and the Rural Household Infrastructure Grant which recorded an under expenditure of R33.2 million or 33.3 per cent of its R100 million available budget.

The Human Settlements Development Grant constituted 93 per cent of the Department’s available budget. Whilst 100 per cent of the grant was transferred to provinces, provincial spending equated to 97 per cent, with the largest under-spending recorded in the North West Province which spent 87 per cent of its allocation.

On engaging with the Department, the Committee noted that in its presentation the Department reported that the target for houses completed in the period under review was 144 124 while completed houses were at 121 879. Questions were thus raised on what processes were in place to address the issues of variances in the housing delivery at the different provinces. It was the view of the Committee that houses were most needed in the rural areas such as the Eastern Cape, however delivery was rather slow. Moreover, the Department was requested to explain, the fact that while the targets were not reached, the budgets were spent.

In respect of the Human Settlements Development Grant, questions were raised on how the Free State Province had managed to spend 312 per cent at the end of the fourth quarter for the 2010/11 financial year. Clarity was sought in respect of where the additional funds came from. The Department reported to the Committee that in respect of housing delivery targets, the province did not deliver on some at all while it underperformed on some. Only 5136 houses were delivered yet all the allocated funds were spent. The Department was requested to furnish the Committee with a detailed report on the over spending by the Free State Province.

Concern was expressed at the delays in the closure of Servcon Housing Solutions (PTY) Ltd (Servcon) and the fact that a budgetary allocation for the 2010/11 financial year had been made in respect of the entity. The Committee sought to determine how much funding was still required to conclude matters related to the closure of Servcon.

2.5 Department of Trade and Industry (Vote 35)

The Department had an available budget of R6.2 billion of which an amount of R5.8 billion or 93.6 per cent was spent at the end of 2010/11 financial year. The total under expenditure amounted to R397.8 million or 6.4 per cent of the available budget.

· Current Payments had an allocation of R1.1 billion of which an amount of R987.2 million or 90.0 per cent was spent. The total under expenditure amounted to R109.9 million or 10 percent of the available budget.

─ Compensation of Employees was allocated R552.6 million recording a total spending of R515.5 million or 93.3 per cent. The total under expenditure amounted to R37.1 million or 6.7 percent of the available budget.

─ Goods and Services had an allocation of R544.3 million of which R471.5 million or 86.6 per cent expenditure was incurred. Total under expenditure amounted to R72.8 million or 13.4 per cent of the available budget.

· Transfers and Subsidies had an allocation of R5.1 billion of which R4.8 billion or 94.4 per cent expenditure was incurred. The total under expenditure amounted to R284.7 million or 5.6 per cent of the available budget.

· Payments for Capital Assets had an allocation of R20.8 million with spending at a total of R17.7 million or 84.7 per cent. The total under expenditure amounted to R3.2 million or 15.3 per cent of the available budget.

The under expenditure was generally due to:

Outstanding invoices from service providers (consultants for business and advisory services, training and development, claims for travel and subsistence and advertising);
Vacant positions not filled and related personnel administrative expenditure. Departmental vacancies amounted to 235 or 17 per cent of the total establishment of 1 385;
Under spending (only 55% spent) under the Automotive Production and Development (APDP) incentive scheme for which a lower number of claims had been received than what was originally budgeted for; and

· Payments to the National Consumer Commission (NCC) and Companies and Intellectual Property Commission (CIPC) did not take place as the two agencies were not fully operational by the 31 March 2011.

Programme 2 (International Trade and Economic Development) had a sizable under expenditure of R18.1 million after spending only R106.9 million (85.5 per cent) of its R125.1 million allocated budget.

· Current Payments, under Programme 2 had a R16.9 million or 93.4 per cent under expenditure.

─ Compensation of Employees under spent by R8.4 million on its R61.8 million budget.

─ Goods and Services under spent by R8.5 million on its R30.8 million budget

A total of R1.2 million was not transferred to receiving entities under transfers and subsidies which was allocated R31.8 million.

Programme 3 (Empowerment and Enterprise Development) performed relatively well in transferring virtually 100 per cent of its Transfers and Subsidies which accounted for 91 per cent of the Programme’s allocation. There was, however, a high under spending on Current Payment, particularly in respect of Goods and Services which under spent by R10.3 million against its R31.3 million available budget.

With regard to Goods and Services, the Committee noted that there was a delay in the submission of invoices by the Department of International Relations and Cooperation (DIRCO) to the Department. The National Treasury reported that the DIRCO only submitted invoices within six months due to ineffective systems. The aforementioned issue was however in the process of being addressed.

PART B

2.6 Department of Communications (Vote 26)

The Department had an available budget of R2.1 billion out of which R1.4 billion or 66.8 per cent expenditure was recorded. As a result, a R710 million (33.2 per cent) under expenditure was reported at the end of the fourth quarter.

In terms of economic classifications:

· An amount of R502.1 million was allocated for Current Payments. Of this amount, R322.2 million or 64.2 per cent was spent. Therefore R179.9 million or 35.8 per cent of this budget was not spent in this regards.

─ An amount of R337.5 million was allocated for Goods and Services. At the end of the period under review R176.0 million or 52.1 per cent had been spent. This means that an amount of R161.5 million or 47.9 per cent was not spent.

· An amount of R1.6 billion was allocated for Transfers and Subsidies. Of this amount, R1.1 billion or 67.6 per cent was spent. Therefore, this means that R529.3 million or 32.4 per cent of the budget was not spent.

· An amount of R4.1 million was allocated for Capital Payments and R2.4 million or 58.3 per cent was spent. Therefore R1.7 million or 41.7 per cent was not spent at the end of the financial year.

Part of the reasons that contributed to the above under expenditure was the fact that funds were not transferred to receiving entities. This included R199 million to Sentec Digital Terrestrial Television (DTT) infrastructure roll out, R180 million for subsidising Set Top Boxes (STB’s) and R150 million for Telkom 2010 FIFA World Cup network infrastructure. A further under expenditure was also reported under goods and services, which was due to R109 million of the 112 Emergency Call Centres and was unspent leading to the suspension of this project. This under spending included the lack of spending on international trips which had been suspended. The under expenditure was also due to slow spending on the compensation of employees as results of vacant posts that remained unfilled because of a moratorium and an organisational review.

2.7 Department of Public Works (Vote 6)

The Department had an available budget of R7.3 billion of which R6.5 billion or 91.4 per cent was spent. As a result, an under-expenditure of R634, 7 million or 8.6 per cent of the available budget was recorded at the end of the fourth quarter.

In terms of economic classifications:

· An amount of R2 billion was allocated for current payments with R1.9 million or 97.2 per cent spent at the end of the financial year.

─ An amount of R1.2 billion was allocated for the Compensation of Employees with R1 billion or 90.7 per cent spent at the end of the financial year.

· An amount of R3.7 billion was allocated for transfers and subsidies with R3.2 billion or 86.7 per cent spent at the end of the financial year.

· An amount of R1.5 billion was allocated for Capital Payments with R1.4 billion or 95.3 per cent spent.

The under expenditure was mainly due to a non-transferral of payments for the Expanded Public Works Programme (EPWP) Incentive Grant to some municipalities and provinces. This was due to the failure by some municipalities and provinces to meet the required performance threshold as per EPWP guidelines. There has been slow spending on goods and services particularly because of unspent budget of border fences which were projected for completion in January. The under expenditure was also a result of the lack of spending in the Devolution of Funds for Public Works and Infrastructure programme.

2.8 National Treasury (Vote 9)

The Department was allocated R50.2 billion for 2010/11. At the end of the financial year, the Department had spent R47.2 billion or 94.1 per cent of its allocation. This means that the National Treasury had under spent by R2.9 billion or 5.9 per cent at the end of the financial year. This high level of under expenditure was as a result of slow spending in the following economic classifications:

· An amount of R1.3 billion was allocated for Current Payments and R1.1 billion or 85.9 per cent was spent at the end of the financial year.

─ An amount of R552.5 million was allocated for Compensation of Employees and R476.1 million or 86.2 per cent was spent.

─ An amount of R810 million was allocated for Goods and Services with R693.9 million or 85.7 per cent spent.

· Transfers and Subsidies had an available budget of R28 billion and R25.3 billion or 90.2 per cent was spent.

· An amount of R16.2 million was allocated for Capital Payments and R8.5 million or 52 per cent was spent by the end of the financial year.

The lack of spending on transfers and subsidies was attributed to the withholding of R669 million of the Infrastructure Grant to Provinces (IGP) and the Neighbourhood Development Partnership Grant (NDPG). These conditional grants were not transferred to provinces and local governments due to non-compliance by the receiving entities with the provisions of DoRA. It is important to note that the deployment of technical assistants and obtaining the buy-in of provinces was still a challenge with regards to the NDPG. The slower spending was also due to the lower than expected payments of the State Debt Cost, resulting in a saving of R800 million. Slow spending on the Compensation of Employees was attributed to 180 vacancies or 14 per cent of the post establishment not being filled. The Department had also paid lower than projected amounts in respect of performance bonuses. The payment for Technical Assistance Unit (TAU) was lower than anticipated at the end of the financial year. An amount of R10.1 million was not spent due to the delays in the finalisation of the firm level survey for job creation. Part of the slow spending was also due to the cost containment measures in the travel and subsistence allowance area. An amount of R33 million was not spent on goods and services for transversal systems and the Integrated Financial Management Systems (IMFS) project due to the delays in signing off of service level agreements (SLA). As part of the Current Payments allocations R888.4 million was not spent due to 180 vacancies not being filled for Infrastructure Delivery Improvement Programme (IDIP) and for the IFMS.

2.9 Department of Health (Vote 15)

The Department was allocated R21.6 billion for 2010/11 financial year. At the end of the financial year, the department had spent R20.9 billion or 96.6 per cent. This means that the department had under spent by R742 933 or 3.4 per cent at the end of the financial year. This level of under expenditure was due to the slow spending in the following economic classifications:

· An amount of R1.2 billion was allocated for current payments with R898.2 million or 80.9 per cent spent by the end of the financial year.

─ An amount of R384.4 million was allocated for Compensation of Employees with R353.6 million or 92.0 per cent spent.

─ An amount of R725.7 million was allocated for Goods and Services and R542.7 million or 74.8 per cent was spent.

· An amount of R20.5 billion was allocated for the Transfers and Subsidies Programme with R20 billion or 97.5 per cent spent at the end of the financial year.

· For Capital Payments, the Department was allocated R44.9 million for the 2010/11 financial year. At the end of the financial year, the Department had spent R17.5 million or 39.1 per cent.

The slow spending on Compensation of Employees was due to delays in appointments resulting from the restructuring of the Department. The under expenditure of R180 million on Goods and Services was mainly due to the non-renewal of a contract with Khomanani. The Department is now using Government Communications and Information Services (GCIS) for the HIV/AIDS awareness programmes. The expenditure was therefore less than what had been projected for Khomanani. The under spending was also due to the lack of spending on the Service Sector Education and Training Authorities. Part of the reasons that contributed to the above under expenditure included slow spending of R38.6 million on Love Life and R3.9 million for Council and Medical Schemes. An amount of R77.3 million was allocated for Love Life but only R38.6 million or 50 per cent was transferred by the end of the financial year. An amount of R3.9 million was allocated for the Council of Medical Schemes and 0 per cent of this allocation was transferred. An under expenditure was reported under the Health Human Resources Management and Development Programme. An amount of R13.9 million was allocated for Goods and Services in this programme, at the end of the financial year only R4 million or 29.1 per cent had been spent. A further under expenditure was reported under the Health Services Programme. An amount of R85.5 million was allocated for Goods and Services in this programme with only R57.9 million or 67.6 per cent spent at the end of the financial year.

An amount of R11.4 billion had been earmarked for Transfers and Subsidies but only R10.9 billion was transferred. This slow spending on the transfer budget was attributed to the lack of transfer payments for the Hospital Revitalisation Programme. An amount of R4 billion was allocated for Hospital Revitalisation with only R3.5 billion or 88.7 per cent spent by the end of the financial year. According to the Department these funds were withheld due to the slow spending by theEastern Cape, Free State, Gauteng, KwaZulu-Natal, Limpopo and Northern Cape provinces. The slow spending on Capital Payments was a result of delays in the procurement of IT services and specialised equipment for forensic laboratories.

2.10 Department of Public Enterprises (Vote 10)

This Department was allocated R555.5 million for 2010/11 financial year. At the end of the financial year the Department had spent R537.2 million or 96.7 per cent. This means that the Department had under spent by R18 335 million or 3.3 per cent. This level of under expenditure at the end of the financial year was attributed to a lack of spending in following economic classifications:

· An amount of R175.4 million was allocated for Current Payments with R157.3 million or 89.7 per cent spent at the end of the financial year.

─ An amount of R90.3 million was allocated for Compensation of Employees with R82.6 million or 91.5 per cent spent.

─ An amount of R85.1 million was allocated for Goods and Services, only R74.6 million or 87.8 per cent was spent.

· An amount of R3.4 million was allocated for Capital Payments with R3.1 million or 93.5 per cent spent at the end of the financial year.

The under expenditure reported under the Current Payments was due to 22 vacancies or 12 per cent of the post establishment not being filled. Part of the reasons was also delays in the payments of consultancy fees and other purchases of inventory. The under expenditure reported under Capital Payments was mainly due to failure to make a payment for computer equipment because these could not be delivered on time. Noting the level of under expenditure, the Department applied for rollovers.

2.11 Department of Transport (Vote 36)

The Department of Transport was allocated R25.2 billion for the 2010/11 financial year. At the end of the financial year, the Department had spent R25.0 billion or 99.2 per cent of its allocation. This means that the Department had reported a R148.2 million or 0.6 per cent under expenditure at the end of the financial year. Even though the Department had reported 99.2 per cent expenditure, some level of under expenditure had been identified in the area of Current Payments and Capital Payments:

· For Current Payments, a total of R983.8 million was allocated for the 2010/11 financial year. At the end of the financial year R929 million or 94.4 per cent had been spent.

· For Capital Payments an amount of R3.9 million was allocated for the same period. Of this amount, only R1.8 million or 48.2 per cent was spent at the end of the financial year.

The notable under expenditure on Current Payments was attributed to the following areas:

• Delays in the appointment of service providers;

• Delays in the implementation of the freight master plan , boarder optimization strategy and implementation of the freight logistic strategy;

• Under expenditure on the Taxi Recapitalisation Programme. The number of taxis scrapped was less than anticipated by the Department for 2010/11.

• Delays in the implementation of the Electronic Performance Management System.

The under expenditure reported on Capital Payments was attributed to the non-conclusion of the Regional Infrastructure projects. These infrastructure projects were expected to be finalised at the end of the 2010/11 financial year.

2.12 Department of Home Affairs (Vote 4)

The Department was allocated R5.8 billion for 2010/11 financial year. At the end of this period the Department had spent R6.5 billion or 112.6 per cent. This means that the Department had reported an overall over expenditure of R737.485 million or 12.6 per cent at the end of the financial year. High levels of over expenditure were noted under Current Payments, Capital Payments and Transfers and Subsidies.

· An amount of R3.8 billion was allocated for Current Payments with R4.4 billion or 112.0 per cent spent at the end of the financial year. Consequently, the expenditure on Current Payments exceeded its projected budget by R641.7 million or 12 per cent at the end of the financial year.

· An amount of R1.9 billion was allocated for Goods and Services with R2.3 billion or 121.1 per cent spent at the end of the financial year. This means that expenditure on Goods and Services had exceeded its projected budget by R409.1 million or 21.1 per cent.

· An amount of R113.9 million was allocated for Capital Payments with R209.6 million or 184 per cent spent at the end of the period under review. This was due to the increase of spending on software and other tangible assets, machinery and equipment. An amount of R96.8 million was allocated for machinery and equipment. At the end of the financial year R158 million or 164 per cent had been spent. For Software and other tangible assets R17.1 million was originally allocated, but by the end of the period under review R50.8 million or 296.9 per cent had been spent.

Some of the reasons that contributed to the high level of over expenditure in the Department of Home Affairs are as follows:

• Payments for outstanding debts from previous financial years.

• Reprioritisation of funds for personnel related expenditure.

• Payments of Fever Tree consulting and for IT infrastructure debts

The department is responsible for four programmes, all three of these programmes reported a significant over expenditure except programme 4 (transfer to agencies) which had only reported 117.4 per cent transfer payments.

2.13 Department of Arts and Culture (Vote 13)

The Department had an available budget of R2.4 billion of which R2.2 billion or 92.1 per cent expenditure was recorded at end of the fourth quarter. As a result an under expenditure of R192.4 million or 7.9 per cent of the available budget was recorded.

· Current Payments had an available budget of R379.1 million of which R361. 2 million or 95.3 per cent had been spent.

─ Compensation of Employees had R152.9 million of which an expenditure of R152.8 million or nearly 100 per cent was incurred.

─ Goods and Services had R226.2 million of which R208.4 or 92.1 per cent expenditure was recorded.

· Transfers and Subsidies had R2.1 billion of which an expenditure of R1.9 billion or 91.7 per cent was recorded.

· Payments for Capital Assets had R6.6 million of which R2.2 million or 33.6 per cent has been spent.

The under expenditure on Transfers and Subsidies was largely attributed to:

Slow spending on the Investing in Culture programme (projects financing) in Programme 4, which had available budget of R117.4 million but spent only R92.5 million (78.8 per cent). An under spending of R24.9 million (21.2 per cent) was thus recorded.

· Withholding of funds due to poor spending on the Community Library Services Conditional Grant. Only R461 941 million or 90.1 per cent was spent against an available budget of R512.7 million on the Community Library Services Conditional Grant in Programme 6. According to the National Treasury the Department withheld an amount of R50.2 million which was supposed to be transferred to provinces as Conditional Grant.

The under spending on Payment for Capital Assets was largely attributed to:

· Delays in purchasing computers and office furniture for senior management staff across all programmes.

2.14 Department of Correctional Services (Vote 20)

The Department had an available budget of R15.4 billion of which an expenditure of R14.7 billion or 95.3 per cent of the available budget was recorded at the end of the fourth quarter. As a result an under expenditure of R728.6 million or 4.7 per cent of the available budget was recorded.

· Current Payments had R13.9 billion of which an expenditure of R13.5 billion or 96.7 per cent was incurred.

─ Compensation of Employees had R9.9 billion of which an expenditure of R9.5 billion or 96.3 per cent was recorded.

─ Goods and Services had R4.1 billion of which R4 billion or 97.6 per cent had been spent.

· Transfers and Subsidies had a budget of R64.5 million of which 100 per cent was transferred to receiving entities.

· Payments for Capital Assets had R1.4 billion allocation of which R1.1 billion or 80.7 per cent expenditure was recorded.

Much of the under expenditure incurred in this Department was attributed:

Vacant posts especially in Administration (Programme 1), Security Programme (Programme 2), Care Programme (Programme 4) and Development Programme (Programme 5).

Other reasons advanced by the National Treasury included:

Delays in the finalisation of Service Level Agreements (SLA) by the State Information Technology Agency in relation to IT projects (Administration programme);
Delays in the procurement of machinery and equipment for nutritional and health care services (Care programme);
Delays in the procurement of production and environment management equipment (Development programme); and
Slow implementation of capital works projects by contractors and delays in tender processes by the Department of Public Works (Facilities programme). The slow implementation of capital works project contributed to slow spending in capital assets and the Department requested a roll-over of R253.3 million, for finalisation of the projects.

2.15 Department of International Relations and Cooperation (Vote 5)

The Department had an available budget of R4.7 billion of which a total of R4.4 billion or 93.1 per cent was spent by the end of the fourth quarter. As a result a R325.2 million or 6.9 per cent under expenditure was recorded.

· Current Payments had an allocation of R3.6 billion and spent R3.5 billion or 99.3 per cent.

─ Compensation of Employees had an allocation of R1.9 billion of which an amount of R1.8 billion or 96.1 per cent was spend.

─ Goods and Services had an allocation of R1.7 billion of which R1.7 billion or 97.7 per cent expenditure was incurred.

· Transfers and Subsidies had an allocation of R872.3 million and recorded an under spending of which a R798.5 million or 91.5 per cent.

· Payments for Capital Assets had an allocation of R290.1 million with an under expenditure of R52.7 million or 18.2 per cent.

The under expenditure on Transfers and Subsidies was attributed to savings on transfer payments due to foreign exchange gained during this financial year as reflected by the recorded under expenditure in Programme 4 (International Transfers).

The under expenditure on Payments for Capital Assets was attributed to:

· Savings that relate to the capital projects that would be completed in the 2011/12 financial year and savings on machinery & equipment which could not be acquired during the 2010/11 financial year.

Spending performance on earmarked funds:

· Spending on the Devolution of funds from the Department of Public Works stood at R2.6 million against the earmarked allocation of R70.6 million representing the under spending of R67.9 million.

· New head office campus (payment for capital assets) spent R149.3 million or 104% against the earmarked funds of R143.5 million, projecting an over spending of R5.8 million at the end of the financial year.

2.16 Department of Water Affairs (Vote 37)

The Department had an available budget of R8.2 billion of which R7.9 billion or 96.8 per cent expenditure was recorded at the end of the fourth quarter. As a result a R262.6 million or (3.2 per cent of the available budget) under expenditure was recorded.

· Current Payments had an allocation of R3.7 billion of which R3.2 billion or 85.1 per cent expenditure was recorded.

─ Compensation of employees had a R1.1 billion allocation of which a R975 million or 86 per cent expenditure was recorded.

─ Goods and Services had a R2.6 billion of which an expenditure of R2.2 billion or 84.4 per cent was recorded.

· Transfers and Subsidies had R3.4 billion of which a R3.3 billion or 99.2 per cent expenditure was recorded.

· Payment for Capital Assets had an allocation of R1.1 billion of which R1.4 billion or 128.5 per cent was spent.

The under expenditure on Compensation of Employees (Current Payments) was largely attributed to:

· A large number of vacant posts in programme 4 (Regional Management) and programme 5 (Water Sector Regulation).

The under expenditure on Goods and Services resulted from:

· Unspent funds in programme 1 (Administration) due to a prolonged licensing process caused by the finalization of the audit services assessing issues related to water allocation reforms which occurred in the second half of 2009/10 financial year;

· Non-expenditure of R7.5 million on the construction and expansion of the gauging wire network due to delays which affected the commencement of Klipplaatsdrift and Sendelingsdrift (In Programme 2 - Water Management);

· Non-expenditure of R74 million due to delays in the approval of projects underpinning the Masibambane programme (Programme 4- Water Management).

Under spending on Transfers and Subsidies was largely attributable to:

· Non-finalisation of the payments for motor vehicle licences to municipalities by the end of the financial year.

Undue delays of the leave gratuity payments to households in the Water Management programme.

4 Committee Recommendations:

The Standing Committee on Appropriations makes the following recommendations:

4.1 That the Minister of Human Settlements should ensure that the Department of Human Settlements furnishes the National Assembly with the following reports in order to justify the observed expenditure:

· Progress report on the turnaround strategy;

· Report on the overspending in the last quarter by the provinces;

· Report on the winding up of Servcon Housing Solution (PTY) Ltd; and

· Report on the signing off of reports by the provincial treasuries.

4.2 That the Minister of Basic Education should ensure that:

· The Department of Basic Education submit a report to the National Assembly outlining how it intended to address the challenges relating to the filling of vacancies, particularly that of the Chief Financial Officer who has been acting for more than 12 months. This was in contradiction of Public Service Regulation B.5.3 which provides that an employee shall not act in a higher vacant post for an uninterrupted period exceeding 12 months.

4.3 That the Minister of Women, Children and People with Disabilities should ensure that the Department of Women, Children and People with Disabilities submits the following reports to the National Assembly:

· Report on a breakdown in respect of the expenditure per programme, inclusive of reasons for over expenditure to the National Assembly.

· Report on the costs of international travels during the 2010/11 financial year. This report needed to be inclusive of how the Department intended to cut expenditure in relation to international travel.

· Report on the Department’s approved organogram as well as reports on the advertising costs and outsourced services.

4.4 That the Minister of Finance should ensure that:

· The National Treasury monitors the Department of Women, Children and People with Disabilities more closely in future in order to ensure better compliance with the prescripts, especially section 32 of the Public Finance Management Act, No 1 of 1999.

4.5 That all affected Ministers should ensure that:

· All departments affected by the issue of vacancies respond urgently to the call by the President of the Republic of South Africa to fill vacancies expeditiously.

4.6 That the Minister of Health should ensure that:

· The Department of Health drafts a strategy in terms of how they would cooperate with its entities, namely Love Life and the Medical Aid Scheme Council given the lack of expenditure with regard to transfers and subsidies of its budget.

4.7 That the Minister of Communications should ensure that:

· The Department of Communications develops mechanisms in order to address the low expenditure patterns.

5. Conclusion

All Ministers affected by the recommendations in sections 4 above should submit reports on the implementation thereof to Parliament within 90 days after the adoption of this report by the National Assembly.

Report to be considered.

Documents

No related documents

ACT111012: Report Fourth Quarter Expenditure Report for the 2010/11 financial year

Standing Committee on Appropriations

Documents

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