ATC111118: Report Adjustments Appropriation Bill [B18 – 2011]
Report of the Standing Committee on Appropriations on the Adjustments Appropriation Bill [B18 – 2011] (National Assembly (section 77)), dated 18 November 2011
Having received a briefing from the National Treasury on the Adjustments Appropriation Bill and having engaged with identified departments, the Standing Committee on Appropriations reports as follows:
The Minister of Finance tabled the Medium Term Budget Policy Statement (MTBPS) on 25 October 2011, outlining the budget priorities of government for the medium term estimates. The MTBPS was tabled together with the Adjustments Appropriation Bill [B18 - 2011] and the Division of Revenue Amendment Bill [B17 - 2010] in Parliament. Section 12 (15) of the Money Bills Amendment Procedure and Related Matters Act, No.09 of 2009 provides that in the event of a revised fiscal framework, an Adjustments Appropriation Bill must be referred to the Committee on Appropriations in the National Assembly only after the Division of Revenue Bill has been passed by Parliament. Accordingly, the Adjustments Appropriation Bill was referred to the Standing Committee on Appropriations for consideration and report.
The 2011 Adjustments Appropriation Bill (the Bill) was tabled within a context of declining tax revenues, slow growth in the economy and uncertain financial conditions. Such an environment calls for more effective, efficient and economic use of financial resources by all those charged with the responsibility to manage public funds. Needless to say, such will require improved planning, more accurate forecasting and the streamlining of priorities. It further calls for a more rigorous approach to oversight by public representatives at all spheres of government. The ultimate responsibility of getting quality services to the citizenry of theRepublic of South Africa must remain uppermost in the efforts of all role-players.
The Standing Committee on Appropriations (the Committee) met with various departments affected by the adjustments in respect of the 2011/12 budget. These were the departments of Water Affairs; Health; Basic Education, Communications; Cooperative Governance and Traditional Affairs (COGTA); Agriculture, Forestry and Fisheries; and Women, Children and People with Disabilities.
2. Overview of budget adjustments
The overall 2011/12 budget estimates has been adjusted upwards from R884.7 billion to R894 billion including direct charge against the National Revenue Fund (NRF). When taking into account the projected under expenditure of R6 billion in the current period, the budget estimates amounts to R888 billion. Therefore, the 2011/12 medium term budget process has introduced R9.2 billion more to the main appropriations. Of the R9.2 billion, transfers and subsidies received the largest portion of R4.4 billion, current payments R3.8 billion and capital payments R923 million. The increase in the adjustment budget for transfers and subsidies was identified in the following areas:
· The R5.2 billion added for transfer budgets to Provinces and Municipalities;
· The R1.1 billion added for Households;
· The R149.6 million for Public corporations and private enterprises; and
· The R1.7 million for Non governmental organisations.
The transfers and subsidies budget therefore increased from R648.4 billion to R652.9 billion after the adjustments.
Meanwhile, the increase in the adjustment of the Current Payments budget was mainly dominated by the R2.0 billion for the Compensation of Employees and Goods and Services R1.3 billion. Therefore, the Current Payments budget increased from R224.3 billion to 228.2 billion after the adjustments. For Capital Payments (CAPEX), the budget has increased from R11.2 billion to R12.1 billion after the adjustments.
The adjustment budget for CAPEX was identified in the following areas:
· An amount of R474 million allocated for Buildings and Fixed Assets;
· An amount of R430.8 million allocated for Machinery and Equipments; and
· An amount of R18 million allocated for Software and other intangible assets.
Of note is that all economic classifications have been revised upwards during the adjustments process. In order to further its engagements on the Adjustments Appropriation Bill, and to give effect to section 10 (1) (a) and (8) (a) of the Money Bill Amendment Procedures and Related Matters Act 09 of 2009, the Standing Committee on Appropriations invited a number of departments to comment on the adjustments in the Bill. These departments were the:
· Department of Health;
· Department of Water Affairs;
· Department of Basic Education
· Department of Communications;
· Department of Cooperative Governance and Traditional Affairs;
· Department of Agriculture, Forestry and Fisheries; and
· Department of Women, Children and People with Disabilities.
The Committee in its engagements with the departments established that some departments contravened the Public Finance Management Act, No 1 of 1999 (PFMA) by shifting funds from one programme to another which were beyond the prescribed 8 per cent.
3. Adjustments per the department
The following section seeks to discuss the adjustments and the discussions between the Committee and the identified departments below. While the Committee welcomed the adjustments, a number of issues were identified during this exercise.
3.1 Department of Health
The budget of the Department of Health has been revised upwards from R25.7 billion to R25.9 billion after adjustments for the 2011/12 financial year. The Department has received an additional amount of R213.3 million for rollovers, R2.6 million for unforeseen and unavoidable expenditure and R2.4 million from other adjustments. In total, the Department receives a total adjustment of R236.4 million for 2011/12 financial year.
With reference to the Hospital Revitalisation Grant, concerns were expressed that the amount of R121 million initially requested for rollover by the Gauteng and the Eastern Cape provincial governments has been reduced to R84.5 million. Hence an amount of R36, 5 million had been withdrawn from these provincial government departments by the National Treasury due to slow expenditure.
Concern was expressed at the perpetual rollovers requested for the hiring of the Civitas Building in which a R30 million rollover was requested and granted for the 2012/13 financial year. A further rollover request of R5, 5 million has been made in respect of Information Technology (IT) Systems in the renovated Civitas building. The Department indicated that it had moved into the Civitas building in November 2010 and that the IT expenditure for the preparation of the move that was made would be finalised during the 2011/12 financial year. No further requests for a roll over in this regard would be requested by the Department.
The Committee made reference to the slow filling of vacancies within the Department pointing out that this needed to be improved in line with the assertion of the President of the Republic of South Africa that all vacant posts within Departments must be filled. The vacancy rate as at March 2011 stood at 17 per cent but 165 posts have been filled during the period April to September 2011 marking an improvement in this regard.
With regard to the slow transfers of funding from the Department to Love Life, the point was made that this had serious implications to the HIV/AIDS awareness programme. During the 2010/11 financial year, only R30 million out of a total allocation of R71 million had been transferred to Love Life and no requests have been made by the Department to roll over the unspent funds. The Department indicated that Love Life had not complied with the PFMA during the 2010/11 financial year and its business plan needed to be re-aligned. This led to the slow transfer of funding to the entity. It was stated that the Department needed to strengthen its relationship with Love Life in order to resolve the non-compliance to the PFMA issues.
The Committee expressed concern in respect of the poor planning by the Department which was reflected in the reprioritisation of a number programmes during the first six months of the 2011/12 financial year. An amount of R3.8 billion in all programmes of the Department had been re-prioritised during the 2011 adjustments budget period.
3.2 Department of Basic Education
The budget of the Department has been revised upwards from R13.8 billion to R14.0 billion after adjustments for the 2011/12 financial year. The Department has received an additional budget of R29.8 million for rollovers and R182.4 million from other adjustments. In total, the Department received a total adjustment of R212.3 million after adjustments.
An amount of R700 million which was initially unallocated has been allocated to the Department of Basic Education at the start of the financial year 2011/12. These funds were for the Accelerated Schools Infrastructure Delivery Initiative (ASIDI). During public hearings held for the 2011 Appropriation Bill, the Committee was informed that 50 schools would be built from this money during the current financial year and that the project would be implemented by the Development Bank of Southern Africa. By the end of the second quarter, 0 per cent of this money had been spent.
On engaging with the Department, the Committee expressed concern at the lack of infrastructure delivery. This lack of spending seemed to disregard the dire need of communities for appropriate schooling infrastructure. This need is predominant in rural communities where children continue to learn under trees or in dilapidated mud structures. The key question was how the Department planned to spend these funds before the end of the current financial year.
The Department reported that as of 14 November 2011 the bid adjudication committee met to deal with the tenders put out by the DBSA. Construction would commence during the festive season and the target is to complete by 31 March 2012. The Committee was assured that the 50 schools would be completed at the end of March 2012. The Department reported that according to the DBSA this target would be met. The Committee was informed that part of the conditions of the bid was that the service providers had to work through the festive season and that the required materials would be available during this time.
Concerns were expressed about the extent to which the assertions of the Department were realistic in terms of what could be achieved by the end of the current financial year. The Department was requested to conduct its own analysis of what the DBSA deemed possible in respect of the 50 schools and submit this in writing to the Committee.
The Department reported that the cost of building schools has increased to over R100 million per school in some cases. This figure was twice or three times higher than the normal rates. This brought to question the extent of value for money. The Committee was informed that the Department was in the process of addressing the matter. Questions were raised on whether the Department had considered investigating possible collusion among the major service providers in this regard. To this end the Department noted that there were no facts at its disposal in this regard. The unusually high prices would, however, be looked into.
In respect of vacancies, the Department indicated that it had to implement a new organogram and progress in filling vacancies has been slow. The challenge had been in coordinating the diaries of ministers to sit in the panels for the appointment of Deputy Director-Generals (DDG’s) as required.
3.3 Department of Communications
The budget of the Department has been revised upwards from R1.9 billion to R2.0 billion during the 2011/12 adjustment process. The Department received an additional budget of R112.2 million for rollovers and R1.5 million from other adjustments. In total, the Department receives an amount of R113.7 million after adjustments.
At the end of the second quarter this Department had spent 28 per cent of its allocation. This marked a significant under-spending. This under-spending was attributed to a number of areas such as:
• The failure to spend 81 per cent of the first tranche of funds for USAF projects;
• The failure to spend 80 per cent of the first tranche of funds for SENTECH projects; and
• Misalignment of plans for the rollout of postal outlets between the Minister and the South African Post Office (SAPO).
The Committee noted that in the 2010/11 financial year, the Department had received an amount of R109 million for the establishment an emergency call centre from which zero per cent was spent. An amount of R117 million has been allocated for the project during the 2011/12 financial year from which not funding has been spent. An amount of R120 million in respect of the project has been returned to the National Treasury since the funds could not be spent. The Department indicated that transaction advisors for a Public-private Partnership for the establishment of the call centre have been appointed to reinstate the project. The Department further indicated that it would reprioritise the funding since it would be able to spend the allocation during the 2011/12 financial year.
3.4 Department of Agriculture, Forestry and Fisheries
The departmental budget has been revised upwards during 2011/12 adjustment process. The Department’s budget has therefore increased from R4.7 billion to R4.9 billion. The Department received additional budget of R37.5 million for rollovers, R193.8 million for unforeseen expenditure and R13.3 million from other adjustments. The Department therefore received a total adjustment of R244.7 million after the adjustments.
The Committee alluded to Programme 1, Administration which had a budget allocation of R1.2 billion while the allocation for Programme 2, Agricultural Production Health and Food Security was only R891 million. Programme 1 included transfers and subsidies amounting to R759.1 million. The point was made that the Department needed to consider introducing a line item within its budget that catered specifically for transfers and subsidies since the current line items created an impression that the programme meant to deliver on the core mandate of the Department had a lower budget than administration. The Department argued that this was because of the restructuring of the Department.
In terms of the Department’s mid-year performance status, the number of new jobs created in agro-processing per year under the Trade Promotion and Market Access programme was zero out of a projected 32 567. This was a cause for concern given that job creation was one of the priorities of government for 2011. The agro-processing sector lost 17 000 jobs between the end of March and the end of June 2011 due to the state of the economy.
Slow expenditure was recorded at the end of September 2011 with regard to Programme 3, Food Security and Agrarian Reform in which the Department recorded an expenditure of 30, 4 per cent or R406, 3 million from an amount of R1, 2 billion. Funds were withheld from the North West and Eastern Cape Provincial Governments for the Illima/ Letsema conditional grant due to slow spending and this led an under expenditure under Programme 3. Concerns were expressed about the slow spending in this regard given the fact that it could assist with food security within South Africa.
3.5 Cooperative Governance and Traditional Affairs (COGTA)
The departmental budget has been revised upwards from R47.9 billion to R48.2 billion during 2011/12 adjustments process. The Department received an additional budget of R5.6 million for rollovers and R266.3 million for unforeseen expenditure. The R5.6 million rollover would be utilised to establish 18 committed employment sites for the community work programme (CWP) that were delayed in the 2010/11 financial year. In total the Department received an adjustment of R271 million after the adjustments process.
Under Transfers and Subsidies the Department had spent 40 per cent by the end of the second quarter in the 2011/12 financial year. The Department reported that only 71 per cent of the Municipal Systems Infrastructure Grant (MSIG) had been transferred by the end of the second quarter. This was attributed to 14 municipalities whose funds were withheld due to failure to comply with the provisions of the Division of Revenue Bill.
An amount of R38.4 million was shifted from the Public Corporations and Private Enterprises programme. This was done to make provision for the transfer of the Siyenza Manje programme to COGTA. This figure was intended to create an entity called the Municipal Infrastructure Support Agency (MISA). Since the process of establishing the new entity was still underway, the National Treasury approved that 20 per cent could be shifted to current expenditure for the continuation of the programme.
The Department has recently signed a contract with the Development Bank of Southern Africa (DBSA) in respect of the MISA. The contract entails that all procurement processes would be done by the DBSA except for certain listed items. The Committee was informed that the first payment of R49.1 million has been paid to the DBSA. Work in respect of the MISA is continuing with about 87 deployees around the country.
The Committee expressed concerns about allegations of fraudulent activities which involve deployees of the Department at municipalities. To this end the Department reported that as of 2011 it has established an anti-corruption inspectorate which had commenced work and that officials that were charged and found guilty would be dealt with accordingly.
3.6 Department of Women, Children and People with Disabilities
The budget of the Department has been revised upwards from R117.9 million to R143.1 million during 2011/12 adjustment process. The Department has received an additional budget of R25 million for roll over and R204 000 for other adjustments. The Department therefore received a total adjustment of R25.2 million at the end of the adjustment process.
The Committee expressed concern at the Department’s total expenditure by the end of September 2011 which, according to the 2011 Adjusted Estimates of National Expenditure stood at 18.7 per cent or R26.8 million from a proposed adjusted allocated amount of R143.1 million. The Department disputed the figures presented in the Adjusted ENE adding that it had been reporting regularly to the National Treasury on its expenditure for the first two quarters of the 2011 financial year. According to the Department, its total expenditure stood at 54 per cent at the end of October 2011 which showed a significant jump from the figure reported by the National Treasury a month earlier. The point was made that the Department needed to verify the expenditure figures with the National Treasury. Concerns were also raised that the Department did not report on any of its achievements in the first six moths of the 2011/12 financial year.
With regard to the Goods and Services economic classification under the Administration programme, R7.1 million had been spent on travelling and subsistence from the beginning of April to the end October 2011. These expenses were exorbitant irrespective of the fact that the Department was a signatory to a number of international conventions. The point was made that the Department needed to take steps to reduce the size of delegations when travelling.
3.7 Department of Water Affairs
The budget of the Department has been revised downwards from R9.9 million to R9.0 million during the 2011/12 adjustment process. An amount of R145.8 million was received for rollovers as well as R208 million for unforeseen expenditure but an amount of R1.2 billion was moved out of the Department’s vote. Therefore, when taking into account the R353.8 million which was received from rollovers and unforeseen expenditure, the total deduction from the departmental budget amounts to R907.9 million.
The Department requested a rollover of R145.8 million under Programme 4, Regional Implementation and Support. The Committee expressed concern about this request for a rollover since the Department only managed to spend 30.3 per cent by the end of September 2011 and doubts were raised on its ability to spend the requested amount. This slow expenditure impacted on the ability of the Department to create jobs which was one of the priorities of Government for 2011.
The Committee expressed concern at the fact that the Department requested to shift R27, 6 million from the Compensation of Employees under the Administration Programme. This was not in line with the State of the Nation Address that was made in February 2011 by the President of the Republic of South Africa in which it was stated that all vacant posts within departments needed to be filled.
4. Committee findings
a) A number of departments contravened the Public Finance Management Act, No 1 of 1999 by shifting funds from one programme to another which were beyond the prescribed 8 per cent;
b) The Department of Agriculture, Forestry and Fisheries created no jobs in agro-processing under the Trade Promotion and Market Access programme by the end of September 2011 out of a projected amount 32 567 jobs for the 2011/12 financial year. The Committee however noted the fact that the mandated of agro-processing has only been transferred to the Department from the Department of Trade and Industry at the beginning of the 2011/12 financial year;
c) Some department requested to shift funds from its Administration Programme for Compensation of Employees which was not in line with the President of the Republic of South Africa’s call during his State of the Nation Address in February 2011 for all vacant posts within National Departments to be filled; and
d) The Department of Women, Children and People with Disabilities has spent more than R7 million on travelling and subsistence from the beginning of March to the end of October 2011 which was a cause for concern.
5. Committee Recommendations
a) That the Department of Water Affairs should submit a strategy to the National Assembly outlining how it intends to fill the vacant posts within the Department; and
b) That the Department of Women, Children and People with Disabilities put mechanisms in place to reduce its travelling expenses both for local and international trips.
The Standing Committee on Appropriations, having considered the Adjustments Appropriation Bill [B18 – 2011] (National Assembly— section 77) referred to it and classified by the JTM; reports that it has agreed to the Bill without amendments.
Report to be considered.
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