DEPARTMENT OF FINANCE
NORTH WEST PROVINCE
PUBLIC HEARING ON CONDITIONAL GRANTS AND INFRASTRUCTURE SPENDING
Due to a huge inherited backlog in basic service delivery it is expected that all allocated funds to departments must be spent in the year in which they are allocated. It is envisaged that the practice of spending the allocated funds timeously will reduce the amount of backlogs.
The MEC for Finance has made it clear that under-spending and the rollover of un-spent funds is unacceptable as it militates against the good intentions of Government.
The provincial treasury doesn’t condone or defend under-expenditure by any department on conditional grants or infrastructure. However, the spending trend on both conditional grants and infrastructure indicates that certain facts should be taken into account when spending on conditional grants and infrastructure is assessed:
For example, for the 2005/06 financial year, the Hospital Revitalization Grant increased from R92,845 million in 2004/05 to R98,056 million despite the fact that the department had under-spent by R44,343 million during 2004/05 and by R28,428 million during 2003/04. The National Department of Health re-allocated R40 million of the 2005/06 conditional grant to other provinces due to the slow spending by the NW provincial department, during the first two quarters of the current financial year. The Hospital Revitalisation Grant has now been combined with the Hospital Management Grant for the 2006/07 financial year (R12,642 million in 2005/06) and increased to R190,884 million.
After more than eleven years of democracy, departments are expected to have the required capacity however, infrastructure implementation capacity has been identified as one of the main challenges facing departments. The lack of appropriate planning and project management capacity is the main challenge facing departments in North West and this impacts negatively on service delivery.
The MEC for Finance has identified and acknowledged the challenge and has committed the provincial treasury to establishing a unit that will be responsible for assisting departments in building the required project management capacity. Planning for the establishment of this unit is in an advanced stage and will be operationalised early in the 2006/07 financial year.
The North West Provincial Treasury has a unit that is responsible for the monitoring of all expenditure, including spending on conditional grants and infrastructure. Monthly and quarterly financial reports are provided to the MEC for Finance and the Members of the Budget Oversight Committee.
Quarterly expenditure reports are discussed with departments with special emphasis on conditional grants and infrastructure spending. The Budget Oversight Committee, chaired by the MEC for Finance, is responsible for the evaluation of spending on these items. This intervention has contributed to the higher than expected spending levels compared to the first quarter. Based on the third quarter spending (refer to schedules A and B) there is likely to be an increased spending although some departments will not be able to fully utilize their allocations.
One of the main constraints in monitoring expenditure by departments remains the fact that neither the Division of Revenue Act nor the Public Finance Management Act provides provincial treasuries with any powers to act when a department is under-spending. In the case of envisaged over-spending, the provincial treasury has the authority to act in terms of the Public Finance Management Act.
Over the past three financial years no provincial department exceeded their approved budgets. The North West Provincial Administration is satisfied that control measures are in place and that it is working effectively to prevent departments from exceeding their approved budgets. However, the emphasis is now on under-spending and service delivery and the provincial treasury has no powers to ensure that departments comply with the implementation of their strategic and operational plans.
Conditional Grants
The department’s conditional grants amount to R424,448 million, which includes an amount of R69,194 million rolled-over from the previous financial year and R11,116 million received as a new conditional grant in the Adjustments Budget. During the first quarter the department only spent 9,1% of their total conditional grants but managed to increase their spending to 31,9% in the second quarter and 59,9% in the third quarter. However, despite the progress made by the department since the low spending during the first quarter, it is projected that the department will under-spend during the financial year.
Infrastructure
Budgeted infrastructure funds amount to R218,690 million of which R102,399 million consists of the Hospital Revitalization conditional grant. The budgeted funds include an amount of R56,979 million rolled-over from the previous financial year.
Infrastructure spending increased from 12,4% in the first quarter to 23,8% in the second quarter and 51,3% in the third quarter. Despite the progress made by the department since the low spending during the first quarter, it is projected that the department will again under-spend in the current financial year.
Conditional grants
The department’s total conditional grants amount to R267,344 million of which R32,831 million was rolled-over from the previous financial year and R17,321 million was received as an additional conditional grant in the Adjustments Budget,
Spending on conditional grants increased from 16,6% during the first quarter to 34,6% in the second and 62% in the third. The additional conditional grant amount received by the department may result in an under-expenditure during the current financial year because no implementation plan has as yet been put in place.
Infrastructure
Budgeted infrastructure funds amount to R269,149 million of which R44,415 million was rolled-over from the previous financial year. An additional amount of R13,680 million was allocated in the Adjustments Budget to the department for the purchase of an office building.
Infrastructure spending increased from 15.6% in the first quarter to 46,9% in the second quarter and 72% in the third quarter. No under-spending on infrastructure is expected during the current financial year.
Conditional grants
The department’s total conditional grants amount to R640,050 million of which R156,062 million was rolled-over from the previous financial year.
Spending on conditional grants increased from 21,7% during the first quarter to 40,6% in the second and 79,3% in the third. The department is not expected to under-spend during the current financial year.
Infrastructure
Budgeted infrastructure funds amount to R689,131 million of which R617,907 million consists of the Integrated Housing and Human Resettlement conditional grant. The budgeted funds include an amount of R211,617 million rolled-over from the previous financial year.
Spending on infrastructure increased from 24,5% during the first quarter to 42,1% in the second and 80,7% in the third. The department is not expected to under-spend on infrastructure during the current financial year.
Conditional Grants
The department’s total conditional grants amount to R4,782 billion of which R108,797 million was rolled-over from the previous financial year. The bulk of the conditional grants consist of the Social Assistance conditional grant.
Spending on conditional grants increased from 6,3% during the first quarter to 43,1% in the second and 65,7% in the third. Despite the progress made by the department on spending on conditional grants, the department is expected to under-spend on some of the grants.
Infrastructure
Budgeted infrastructure funds amount to R31 million and no funds were rolled-over from the previous financial year.
No spending on infrastructure took place during the first two quarters of the financial year and 13,1% was spent during the third quarter. Despite the low spending during the first three quarters of the current financial year, the department is expected to spend the full budgeted amount during the current financial year. Due to the high cost estimates of projects, implementation was delayed to ensure that the department does not exceed the budgeted amount.
Conditional Grants
The department’s conditional grant amounts to R164,402 million and consists of the Infrastructure conditional grant. The budgeted amount includes R17,853 million rolled-over from the previous financial year and an additional allocation in the Adjustments Budget of R6,5 million of the Infrastructure conditional grant transferred from the Department of Health.
Spending on the conditional grant increased from 18,2% during the first quarter to 47,1% in the second and 63,6% in the third. The department is not expected to under-spend during the current financial year.
Infrastructure
Budgeted infrastructure funds amount to R447,608 million of which R164,402 million consists of the Infrastructure conditional grant. The available funds include an amount of R63,342 million rolled-over from the previous financial year. An additional amount of R16 million was also made available to the department in the Adjustments Budget for EPWP roads projects.
Spending on infrastructure increased from 14,8% during the first quarter to 39,9% in the second and 61,4% in the third. The department is not expected to under-spend on infrastructure during the current financial year.
Conditional Grants
The department’s conditional grant amount to R2,670 million. No conditional grants were rolled-over in the previous financial year.
Spending on the conditional grant increased from 7,6% during the first quarter to 18,4% in the second and 40,3% in the third. The department might under-spend on the conditional grant during the current financial year.
Infrastructure
Budgeted infrastructure funds amounts to R16 million and no funds were rolled-over in the previous financial year.
Spending on infrastructure only started in the second quarter (16%) and 47% was spent for the period up to 31 December 2005. The department might under-spend on infrastructure during the current financial year.
Conditional Grants
The department’s total conditional grants amount to R54,594 million of which R16 million was received in the Adjustments Budget for Disaster Management. In the past the department transferred all conditional grants to a public entity for the implementation of projects and therefore no funds were rolled-over.
No expenditure on conditional grants took place during the first two quarters of the current financial year and only 1,2% was spent during the third quarter. The department is experiencing serious managerial problems and it is unlikely that much more expenditure will be incurred during the remainder of the financial year.
Infrastructure
Budgeted infrastructure funds amount to R90,935 million. All infrastructure funds were transferred to a public entity in the past and therefore no funds were rolled-over in the previous financial year.
Spending on infrastructure only started in the third quarter (0,8%). The department is experiencing serious managerial problems and it is unlikely that much more expenditure will be incurred during the remainder of the financial year.
Infrastructure
Budgeted infrastructure funds amount to R4 million and no funds were rolled-over in the previous financial year.
Spending on infrastructure only started in the third quarter (59,9%) but, due to the relatively small budgeted amount, no under-spending is expected on infrastructure during the current financial year.
Infrastructure
Budgeted infrastructure funds amount to R11,225 million and includes an amount of R382 000 rolled-over from the previous financial year. The funds were budgeted for the completion of extensions to the Legislature’s Building and 35,1% was spent during the first three quarters of the current financial year. The balance are mainly retention moneys that should be paid during the current financial year.
Infrastructure
Budgeted infrastructure funds amount to R188,906 million and include an amount of R4,305 million rolled-over from the previous financial year.
Spending on infrastructure increased from 4,7% during the first quarter to 27,6% after the second and 54,7% after the third. Although the implementation of most projects only started in the second quarter, no under-expenditure is expected.
Both the Department of Education as well as the Department of Health are using IDT for some infrastructure development projects and they are reluctant to make use of the Provincial Department of Public Works to implement their projects. There is a need to improve cooperation between other departments and Public Works.
It is a fair assessment that the line-function departments do not have the necessary capacity to plan and monitor the implementation of projects and therefore need assistance.
Building capacity in departments will be a major challenge for the provincial treasury but will assist in restoring confidence in the Provincial Department of Public Works because it will be able to commence with project implementation in time.
Departmental spending started at a slow pace during the first quarter of the financial year but the involvement at the highest provincial level has contributed significantly to get departments to accelerate spending during the second and third quarters of the financial year.
Although there are still serious challenges to ensure effective and efficient spending on conditional grants and infrastructure, the provincial treasury is satisfied with the progress made since the serious under-spending in the previous financial year. The implementation of the new initiatives should also contribute to ensuring that increased quality and quantity spending by departments happens.
North West Provincial Treasury
16 January 2006