To report to the Select Committee on Finance on the transfer and actual expenditure on all conditional grants forming part of the 2004/05 financial year’s adjusted budget.

The following analysis of conditional grants is based on the schedule attached as Annexure A, which data have been consolidated from the fourth quarter provincial statement of actual expenditure and revenue based on the In year Monitoring, Management, and Reports published by National Treasury on the 29 April 2005.

The numbers reflected in the above-mentioned schedule excludes provincial roll-overs approved by the Executive Council. In order to provide a more comprehensive reporting on conditional grants, approved provincial roll-overs will be included in this discussion.

The discussion below will be focused on mainly three issues namely; 2004/05 adjusted budget inclusive of roll-overs, conditional grants received by the Province and actual expenditure as at 31 March 2005.

The original budget for conditional grants was R1, 613 billion as per the Division of Revenue Act. 5 of 2004 and 2004/05 Budget Statement. The above 2004/05 conditional grants allocation of R1, 613 billion constitutes 12, 86 per cent of the R12, 544 billion provincial budget.

Based on the Government Gazette dated 08 December 2004, one new conditional grant was introduced for the Department of Agriculture, namely Agricultural Disaster Management amounting to R17, 000 million.

Furthermore, an amount of R1, 370 million for Land Care Programme: Poverty Relief and Infrastructure Development was provided for through the adjustment budget process as an additional allocation to the Department of Agriculture, resulting in an adjusted allocation of R3, 370 million in respect of the above grant.

Given the above additional allocation of R18, 370 for the said department from the National Department of Agriculture (Vote 26), the total available funds from National Departments as per Annexure A for conditional grants, amounted to R1, 631 billion.

Over and above the additional allocation received by the last mentioned department, roll-overs amounting to R190, 487 million were approved by the Executive Council and ultimately formed part of the 2004/2005 adjustment budget (refer to the column "Provincial roll overs" on page 1 of Annexure B).

The adjusted conditional grants allocation which includes new allocations from the National Department of Agriculture and provincial roll-overs equals R1, 821 billion or 13, 5 per cent of the total adjusted provincial budget of R13, 489 billion.

In terms of Annexure A, the total available cash that should have been transferred and received by the Province based on the adjusted budget (Only National Funds) is R1, 630, 913 billion. According to the same Annexure cash transferred from National to Province is R1, 613, 156 billion. The difference between the total available funds for 2004/05 and cash transferred to Province is R17, 757 million.

The above-mentioned difference relates to the two Health Conditional Grants namely, Comprehensive HIV and Aids and Hospital Management and Quality Improvement in respect of which the entire budgets have not been transferred. The make up of the variance is as follows:

a) Comprehensive HIV and Aids

b) Hospital Management and Quality Improvement

The main reason for not receiving the entire budgets for the last mentioned conditional grants is slow spending, which has resulted in the National Department of Health withholding the remaining funds of R17, 757 million.

According to Annexure B (page 4), preliminary actual expenditure as at 31 March 2005 is R1, 507 billion. Against the total budget of R1, 821 billion, the above actual expenditure accounts for 82, 8 %.

As mentioned in point 2 of this report, Annexure A does not give a comprehensive report on conditional grants mainly because it excludes provincial roll-overs and expenditure on certain grants is excluded.

Accordingly, the spending on conditional grants based on the last mentioned Annexure B can be summarized as follows:

Agriculture

Included in the allocation of R3, 370 million for the Land Care Programme is an amount of R1, 370 million appropriated in the adjustment budget. With regard to Agricultural Disaster Management, the allocation of R17, 000 million was also appropriated in the 2004/05 adjustment budget.

Non-spending with regard to the Land Care Programme and Agricultural Disaster Management conditional grant can be attributed to the process of the registration of applicants and the assessment of the measure of disaster which started immediately after the adjustment budget was introduced in the Legislature during November 2004. The appointment of contractors was delayed by the mandatory use of BEE suppliers and transport contractors.

The reason for not spending on most of these grants was the result of a lack of readily available investment opportunities in rural farming communities, a lack of project implementation skills in the department, as well as a moratorium on spending early in the financial year.

The process is now fully underway and the department is in a position to spend all of the available funds in the 2005/06 financial year.

According to the table below, Education’s adjusted conditional grant budget inclusive of Provincial Infrastructure amounted to R112 million. Preliminary actual expenditure of R98 million accounts for 87 per cent of the above adjusted conditional grant budget and the under expenditure share of the said budget is 13 per cent.

With regard to the Department of Social Development’s adjusted conditional grant budget for the 2004/05 financial year, preliminary under expenditure amounts to R235 million or 75 per cent of the revised conditional grant allocation. The non-spending on Food Emergency Relief Grant is as a result of the late awarding of the tender by the National Department of Social Development.

The department of Sport, Arts, Culture, Science and Technology has virtually spent their entire Mass Sport and Recreation Participation Programme budget with actual expenditure recorded at R971 000 or 97 per cent. Under expenditure amounts to R29 000 or 3 per cent of the last mentioned conditional grant allocation.

Table 5 indicates that Health has spent R596 million or 90, 2 per cent of their conditional grants budget inclusive of R39 million for Provincial Infrastructure. Consequently under expenditure is recorded at R64 million or 9, 8 per cent of the total available budget for conditional grants.

Although these figures indicate an under expenditure of 9, 8 per cent, the department amended their figures in line with the Pre-audited Financial Statements whereafter total expenditure amounts to R639, 640 million or 97 per cent of the total available budget. As a result of the amended figures, under expenditure decreased to only R21 million or 3 per cent.

National Allocation of conditional grants in respect of Local Government and Housing increased substantially by R170 million or 40 per cent from the initial allocation of R429 million to R599 million due to the approved provincial roll-overs.

The significant growth of 40 per cent has put an extra burden and responsibility on the department to spend its adjusted conditional grant allocation of R599 million. With the exclusion of roll-overs, the actual expenditure of R491 million accounts for 114 per cent of the above initial allocation, indicating that had it not been for roll-overs, the department would have spent their entire allocation.

Table 6 indicates that preliminary actual expenditure accounts for 82 per cent of the adjusted conditional grant allocation, resulting in an under expenditure of 18 per cent or R109 million. The last mentioned under expenditure remains a challenge to the department for the 2005/06 financial year because it constitutes the biggest portion of their roll-over request to be spent in the current financial year if approved.

According to the table below, Public Works, Roads and Transport received funds in respect of the Provincial Infrastructure grant which amounts to R84 million. Preliminary actual expenditure of R81 million accounts for 97 per cent of the above adjusted conditional grant budget and the under expenditure share of the said budget is 3 per cent.

The provincial departments submit their approved business plans directly to the National Department responsible for each grant who in turn submit it to National Treasury. The following certified business plans were submitted to National Treasury as per the attached confirmation from National Treasury (Annexure C):