Committee Report on Department Expenditure for Fourth Quarter 2005/06: discussion

JOINT BUDGET COMMITTEE
31 May 2006
COMMITTEE REPORT ON DEPARTMENT EXPENDITURE FOR FOURTH QUARTER 2005/06:  DISCUSSION

Co-chairpersons: Ms L Mabe (ANC) and Mr B Mkhaliphi (ANC)

Documents handed out
Joint Budget Committee Report on Department Expenditure, April 2005 to March 2006
Joint Budget Committee Concept Paper
Joint Budget Committee Strategic Plan

SUMMARY
A Parliamentary Researcher briefed Members on the expenditure by each state department in the last financial quarter, April 2005 to March 2006. The expenditure had been fairly consistent throughout the financial year. It was evident that departments had increased their expenditure in the last financial quarter, most notably the Departments of Sports and Recreation, and Transport. All provinces had also underspent on their budgets.

Members felt that the late payments to service providers would negatively impact on the Accelerated Shared Growth Initiative for South Africa (ASGISA). They raised concerns about the lack of information on the causes of underspending.

MINUTES
Mr B Mkhakiphi noted that the Committee reviewed budgets on a monthly and quarterly basis. The Committee only considered total annual expenditure at this point when reviewing the fourth quarter statements, which was the end of the financial year. It was important for Members to look into the quality of the spending in each department. He felt the Committee’s observations should be reflected in their quarterly report to Parliament.

Parliamentary Researcher’s briefing on National Expenditure
Mr Abdullah Ganief, Parliamentary Researcher, gave Members a brief summary of expenditure in each department.

National expenditure: The department expenditure had been fairly consistent throughout the financial year. It was evident that departments had increased their expenditure in the last quarter, most notably the Departments of Sports and Recreation, and Transport. The Department of Communications had significantly improved its expenditure trends over the 2005/06 financial year. The departments had started the financial year with a low average expenditure of 5% in April 2005, increasing sharply to 11.13% in May 2005. This had then decreased to 7% in June 2005. At the end of the second quarter, average department expenditure had been 43.81% and by the end of the third quarter expenditure, had increased to an average of 70.47%. At the end of the 2005/06 financial year, the average department expenditure had been 97.67%. This translated to under-expenditure of approximately R5.4 billion during the last financial year.

Provinicial expenditure: The Committee was told that all the provinces had underspent their budgets. Provincial expenditure had increased from an average of 98.72% in 2002/03 to 99.47% in the 2003/04 financial year. It had then decreased to 96.94% in the 2004/05 financial year. The average expenditure for the 2005/06 financial year had increased to 97.99%.

Discussion
Mr B Mkhakiphi noted that the same departments seemed to be consistently overspending or underspending. The Minister of Land Affairs had said in her Budget Speech that the Department had planned to underspend. Members needed to look at the departments business and strategic plans. The Committee should form work groups to delve further into the problematic departments.

Mr B Mkongi (ANC) felt that the report had arrived a bit late, as it would have helped them on their oversight visits. It was worrying that departments start underspending during the first quarter and then overspending towards the end of the financial year.

Mr T Ralane commented that they needed to be careful to not repeat the analysis work of Standing Committee on Public Accounts (SCOPA). He felt that the researcher should investigate which departments were truly receiving transfers from Parliament.

Dr S van Dyk (DA) said they needed to ensure that the departments had budgeted correctly. He was worried about the expenditure on the capital account. Reasons were needed on why there was underspending.

Mr D Botha (ANC) said that budgets were not a surprise to departments as these were allocated over three years. If there was overspending, it meant that the Department had failed to budget correctly. Contractors were not prepared to wait for long periods for payments

Mr E Sogoni (ANC) also felt that they needed the non-financial information. It was important to find out whether the departments were only spending more at the end of the financial year because there was a risk that they would lose the money the following year.

Mr Z Kolweni (ANC) was not happy with the Conclusion at the end of the Report.

Mr Ralane said that they now needed to work out a realistic programme of action. They should meet with the sector portfolio committees on the matter overspending. The portfolio committees might then decide to do an oversight visit before calling a department before the relevant portfolio committee to answer questions.

Dr Van Dyk felt that the switch to the Accrual Accounting system would create problems for a number of departments.

Mr S Dithebe said that there were penalties for departments who paid their contractor bills late. Provision had been made in the Accrual Accounting system for early payments, as stated in the Public Finance Management Act (PFMA). Late payments would directly impact on ASGISA. Certain departments should make the non-financial information available.

Ms L Mabe (ANC) reminded Members that the Committee now had a dedicated researcher. They had asked the departments in the past to provide them with cash flow statements. Not all of the departments had complied with this request. Most of the spending had taken place in the last quarter. Most of the businesses that rendered services to the departments were small businesses or Black Economic Empowerment companies. The Department of Home Affairs had a disclaimer for the 2004/05 financial year.

Mr B Mkhakiphi said he needed to find out whether their terms of reference allowed them to delve into Parliament’s finances. It was important for them to look at the quality of the spending in each department.

Mr Van Dyk commented that from the report it appeared that much debt had been rolled over from the previous financial year.

Mr B Mkhakiphi felt their observations should be reflected in their quarterly report to Parliament.

The meeting was adjourned