Report of the Standing
Committee on Appropriations on the 2009/10 Fourth Quarter Expenditure Report,
dated 07 September 2010
Having received a briefing from the National Treasury
on the fourth quarter expenditure report for the financial year 2009/10 and engaged
in public hearings with identified national departments, 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, National Treasury tabled the fourth quarter expenditure
report before the Committee on 01 June for its consideration. This report
provided preliminary expenditure trends for the end of the 2009/10 financial
year. A number of issues emanate from this report that requires the attention
of the Executive. These include a number of vacancies in government
departments, unsatisfactory spending on conditional grants, slow spending on
capital payments and the persistent culture of rolling over funds, shifting of
funds and virements. While section 43 of the Public Finance Management Act
(PFMA), allowed departments to do virements of up to 8 per cent of their
budget, the Committee was concerned about the extent of this practice. In the
Committee’s view, this might be an indication of a lack of proper budgeting and
planning by departments as virements and shifting of funds were being effected as
early as the first quarter of the financial year.
Furthermore, this report comes during a period when the country is faced
with a number of challenges. These include an increase in unemployment rate,
backlogs in the provision of services, challenges in the health care sector and
landlessness. These require prudent spending and effective mechanisms to ensure
that tangible outputs are achieved through proper implementation of budget. This
report focuses on the spending trends by different departments and highlights
in detail some challenges that still exist in the implementation of budget. The
affected departments were invited to public hearings to account on their
respective spending. These included the departments of Basic Education, Higher
Education, Public Service and Administration, Energy, National Treasury, Health,
Arts and Culture, Public Works, Agriculture, Forestry and Fisheries and Public Service Sector Education Training Authority.
2.
Expenditure Trends at the End of 2009/10
National departments were allocated an adjusted budget of R408.9 billion
in the 2009/10 financial year. This included R118.7 billion (29.03per cent) for current
payments, R282 billion (68.98 per cent) for transfers and subsidies, and R8.2 billion
(1.99 per cent) for capital expenditure.The
preliminary figures indicated that national departments had spent R403.8
billion of their overall budget at the end of the fourth quarter, an
under-spending of R5.1 billion. Departments had under-spent in some economic
classification but reported different levels of under-spending. The overall
expenditure reflected R115.7 billion (97.49 per cent) on current payments,
R279.8 billion (99.20 per cent) on transfers and subsidies and R8.3 billion on
capital expenditure (101.78 per cent).
The year-on-year spending comparison for the departments reflected a
declining trend. The national departments spent 98.75 per cent of their budgets
in 2009/10 compared to the previous year’s expenditure of 99.05 per cent.
Approximately 11 departments have spent within the range of 84.5 to 97.0
percent while 23 departments had spent within the range of 97.4 to 101 per cent.
The Committee was particularly concerned about the under-spending of budgets
since this has a potential to negatively impact on job creating and service
delivery. Slow spending in some capital projects and conditional grants partly
contributed to this trend. While the departments had requested rollovers of
some of these funds, the lack of spending in these areas introduced a new risk
of cost escalations for projects and this impacts negatively on government
budgets.
3.
Spending trends for the Selected Departments
The departments reported different levels of spending on their budgets.
The Department of Arts and Culture reported the lowest spending of 84.5 percent
while the Department of Transport was the highest spending department at 101.1
percent. The following departments were selected after consideration of certain
factors, namely, those that are central in the implementation of policy priorities and
the spending pattern of different departments.
Table 1: Spending Trends per Department
|
Department |
2009/10 Budget
Allocation |
Under/ (Over)
spending |
||
|
|
Adjusted
Budget |
Actual
Expenditure |
R'000 |
% |
|
Public Works |
6 049 130 |
5 687 218 |
361 912 |
5.98 |
|
Arts & Culture |
2 632 110 |
2 224 931 |
407 179 |
15.47 |
|
Education |
21 848 857 |
21 361 210 |
487 647 |
2.23 |
|
Health |
18 423 459 |
17 966 210 |
457 249 |
2.48 |
|
Communications |
2 470 494 |
2 301 912 |
168 582 |
6.82 |
|
Rural Dev. & Land
Reform |
6 391 091 |
5 854 721 |
536 370 |
8.39 |
|
Minerals & Energy |
4 683 004 |
4 538 797 |
144 207 |
3.08 |
|
Water Affairs |
7 774 002 |
7 586 829 |
187 173 |
2.41 |
|
Transport |
24 238 517 |
24 501 837 |
(263 320) |
(1.09) |
Source: National
Treasury (2010)
3.1
Department of Public Works
The Department of Public Works was allocated R6 billion in the 2009/10
financial year. A substantial share of this budget amounting to R4.4 billion
was allocated to the Provision for Land and Accommodation programme and R768.5
million to the National Public Works programme. Out of the budget allocation for
the National Public Works programme, R201.7 million was for the Expanded Public
Works Programme (EPWP) Incentive Grant for Municipalities while R151.4 million
was for the EPWP incentive grant to Provinces.
The Department had spent R5.7 billion at the end of the fourth quarter which
was an under-spending of R361.9 million. An under-spending of R220.2 million (5
per cent) was reported on Provision of Land and Accommodation Programme due to
delays in registration and payment processes for properties that were being
acquired or refurbished by the Department. Delays in spending were related to
the acquisition of prestige accommodation as the suitability and availability
of buildings remained a challenge. The processes of negotiating prices further
contributed to the delayed spending. Furthermore, the negotiations for the
acquisition of a property required for the construction of the Border Post
precinct delayed the execution of the Land Ports of Entry project. The One Stop
Boarder Post project initially planned for Lebombo was restructured into phases
due to financial and legal implications associated with operations and
construction required on foreign territory. Spending on the Re kgabisa Tshwane
programme was delayed by late approval for additional work for the Government
Garage programme and delays in the appointment of consultants. Other
infrastructure projects including Dolomite and Accessibility were also delayed
by procurement processes. The Department has indicated its intention to request
a rollover in this regard.
The other area of slow spending in the departmental budget was EPWP
incentive grant due to non-disbursement of grant funds to provinces and municipalities.
The Department has under-spent by R101.3 million (50.19 percent) on EPWP
incentive grant to municipalities as well as R35.2 million (23.25) on EPWP
incentive grant to provinces. The following were among the challenges faced by
the Department in the implementation of this grant:
·
Lack of communication
between the Department of Public Works and provinces.
·
Lack of clear understanding
of the purpose of this grant by provinces
·
Misalignment of financial
years between provinces and municipalities.
·
Uncertainty about refunding
as the grant compensate for past performance.
·
Capturing of data from
provinces and municipalities.
The Department reported that it was developing a number of initiatives
to overcome the challenges experienced in the implementation of this grant.
These included the appointment of 90 data capturers to improve the credibility
of database, and technical support to municipalities for improved data capturing
and reporting. It added that provincial and municipal officials were trained on
the EPWP incentive grant for better understanding.
The Committee noted that, as in previous hearings, concerns were raised
by various departments about the lack of capacity within the NDPW to deliver on
capital projects timeously. The design
of the EPWP Incentive grant and the fact that departments had to spend prior to
accessing the grant was also a matter of concern,
3.2
Department of Arts and Culture (DAC)
This Department was allocated an adjusted budget of R2.6 billion in
2009/10. A substantial share of R1.2 billion was allocated to Heritage
Promotion Programme and R75 million was set aside for 2010 FIFA World Cup
projects.
The Department was the lowest spending department with an expenditure of
84.5 percent at the end of the fourth quarter. It had under-spent by R407.2
million (15.47 per cent) mainly due to slow spending in most of its programmes.
An expenditure of 71.3 per cent was reported on Heritage Promotion Programme
due to low spending of capital works projects at public entities. The Department
was allocated R601.4 million for Capital Works and had only spent R249.7
million of this budget at the end of the fourth quarter. It under-spent by
R351.7 or 58.5 percent on Capital Works due to the following factors:
- Cancellation of
a contract to build new Archives building due to insufficient funding. An
amount of R150 million was budgeted and allocated to this project based on
the departmental projections when the budget was requested. The budget
request was approved but this amount was proven to be lower when the Department
of Public Works (NDPW) prepared its estimated costs for the project.
- Delays in
approving additional funding for existing projects.
- Delays in
approving sketch plan documents and tenders by the NDPW.
- Cancellation of
contracts due to underperformance.
- Projects not
implemented within agreed timeframes and specifications by NDPW.
- Lack of
monitoring of projects and inexperienced project managers in the NDPW.
- Insufficient
capacity in the Facilities Management Directorate with the DAC
In dealing with these challenges, the Department indicated that client
forums among affected stakeholders including the DAC and NDPW were established
to plan for projects and assess their implementation. The Capital Works
Committee within the Department was formed to assist in managing and monitoring
the capital works budget. Furthermore, assistance was requested from, and
provided by the National Treasury’s Technical Assistance Unit to deal with
Capital Works.
The Committee viewed the Capital Works projects as a catalyst of
creating jobs and noted that proper planning for capital works was important
for the success of the projects. It acknowledged the challenges to be late
submission of needs for Capital Works to the NDPW and suggested that Capital
Works plans and needs should be submitted to the NDPW at the beginning of a financial
year.
The Department also reported an unsatisfactory spending pattern of 79.4
percent on the Cultural Development and International Cooperation Programme. This
was due to a slow spending of 12.62 per cent on the Investing in Culture
Programme as a result of a moratorium on payments from this Programme. The
moratorium was placed by the Minister due to the suspension of the Deputy
Director-General (DDG) and staff members from this Programme. It was reported
that the Deputy Director-General was suspended for suspected fraud and that the
moratorium was placed to allow a forensic audit to take place. The
irregularities included money that was being spent for non-existing projects
and the forgery of the Director-General’s signature. Subsequent to this audit,
the DDG with 12 departmental officials were dismissed by the Department. This
case was forwarded to the Special Investigations Unit (SIU) for further
investigations with a view to recovering funds where financial losses were
incurred. The Assets Forfeiture Unit was involved in efforts to recover funds
from those found responsible for the losses. The moratorium resulted in R81.3
million of the R93.1 million allocated to this programme not being spent. The
Department has requested a rollover of R18.6 million for the Investing in
Culture Programme.
The Committee noted that the inadequate risk management strategy resulted
in the embezzlement of funds, as payment was made to non-existing projects. It
further required that a proper turnaround strategy be developed to counter the
repeat of this phenomenon in future. It was indicated that some of the people
who were fired were provincial coordinators responsible for monitoring and
evaluation of capital projects. This was mainly a break of trust as the
Department relied on these officials to monitor projects. During the hearings
the Department reported that it had since developed a turnaround strategy which
included:
·
Enhancement of Risk Management
strategy and processes.
·
Strengthening of Audit
Committees.
·
Improved coordination with
provinces.
It further stated that the repayment of funds and/or attachment of
properties of those found responsible had not started yet. The SIU was still
busy with its investigations.
The Department was allocated R75 million for the 2010 FIFA World Cup
projects and had spent R62.1 million of this budget at the end of the fourth
quarter. This was an under-spending of R12.9 million on these projects, the
majority (R6 million) of which was from the funds for Public Viewing Areas
(PVAs). This delay in spending was mainly due to the fact that the event was
held from June 2010. The Department reported that it had requested a rollover
of these funds from National Treasury for the maintenance of infrastructure,
particularly in PVAs. Other areas of concern in the spending of the Department
were the Financial Assistance to Promote Language Development which had over-spent
by 93.8 per cent and the programme for the Promotion of Arts and Culture
Internationally which only spent 42.6 per cent of its budget.
3.3
Department of Education
The Department of Education was among the departments that were
allocated a substantial share of the budget. It was allocated R21.8 billion
with 20.1 billion (92.15 per cent) going to transfers and subsidies. These
included conditional grants and subsidies to institutions of higher learning.
The Department has spent R21.4 billion at the end of the fourth quarter.
This represented an under-spending of R487.6 million compared to the budget. The
General Education Programme which was responsible for developing and
implementing national policy for general education and quality assurance spent 42.5
per cent of its budget. This programme included the budget for literacy and
numeracy workbooks. The Department spent R352.6 million of the R829.9 million
allocated to this Programme. Funds amounting to R524 million were allocated
during 2009 budget adjustments for literacy and numeracy workbooks for Grades R
to 6 learners. These funds were not spent due to the cancellation of a tender
which was marred by irregularities. The Department used R48 million of these
funds for Grade R resource kits and lesson plans for grade 1 to 6. It has
requested a rollover of the remaining R476 million. The Department decided not
to go out on tender process but to develop the workbooks internally. Experts
for the development of workbooks were hired and the Department was in the
process of selecting schools to pilot the delivery of the workbooks. The
outcomes of this pilot would inform the rollout and the distribution of
workbooks to schools. The Committee was concerned about the late delivery of
these workbooks since education was among the priorities that were announced by
the President during the 2009 State of the Nation Address. While it noted the initiative
it was interested in determining the extent to which savings would be made as a
result of this initiative. Both the National Treasury and the Department of
Basic Education could not quantify the cost implications of the initiative by
the Basic Education Department. The Committee remained concerned about delays
in implementing the budget for the literacy and numeracy workbooks.
The implementation of the departmental budget was also affected by
vacancies. The Department did not spend R4.4 million on System Planning and
Monitoring programme due to the late filling of vacancies in the Integrated
Quality Management System Unit as well as vacancies in the National Education
Evaluation Development Units. These vacancies contributed to the slow spending
on capital payments as furniture and equipment could not be purchased.
3.4
Department of Health
This Department was allocated R18.4 billion in 2009/10, with transfers
and subsidies receiving R17.2 billion of this budget. An amount of R16.7
billion was allocated to conditional grants, including R3.4 billion for
Hospital Revitalisation Grant.
The Department had spent R18 billion at the end of the fourth quarter, which
was an under-spending of R457.2 million (2.48 percent). Both Health Services
and Health Planning and Monitoring programmes reported an expenditure of 96 per
cent and 97.4 per cent, respectively. International Relations, Health Trade and
Health Product Regulation programmes spent 93.5 per cent of their budgets. This
under-spending was largely due to the non-disbursement of R381.1 million for the
Hospital Revitalisation Grant. The slow spending in three provinces, namely,
·
·
·
The Department
seemed to be experiencing challenges in managing this grant. Funds amounting to
R87.7 million were rolled over from 2005/06, R234 million from 2006/07, R132.1
million from 2007/08 and R183.9 million from 2008/09. The Department had
requested a further rollover of R381 million for this grant in 2009/10. This
grant aims to transform quality management and to improve the quality of health
care. While the country had generally made significant strides in improving the
health care system, the quality of health services in some public hospitals was
deteriorating. The slow spending on the Hospital Revitalisation Programme was worrisome
since improved quality and management of public hospitals was necessary in the
implementation of the National Health Insurance system.
The Department indicated that it was closely monitoring capital projects
to prevent wasteful expenditure. The Committee supported this plan but
questioned its role in ensuring spending by provinces. The Committee viewed the
role of the provincial departments to be that of policy implementation, while the
national department monitors such implementation and give guidance where
necessary. This principle seemed to be lacking and this was reflected by the
under-spending. It also appeared that provincial departments were not
submitting their plans and expenditure reports for this grant to the relevant provincial
treasuries as timeously as required. The Department indicated that an engineer
had been appointed to review all infrastructure projects and teams were formed
to improve compliance with contractual and legal obligations. It added that
some institutional arrangements had been put in place to monitor projects. The Development
Bank of Southern Africa (DBSA) would also assist the Department to evaluate and
enhance the capacity of hospitals’ Chief Executive Officers (CEOs). The
Committee committed to monitoring these departmental initiatives and provide
support where necessary.
3.5
Department of Communications
The Department of Communications was allocated R2.5 billion and this
budget was dominated by transfers and subsidies, which were allocated R2
billion. The Department had spent R2.3 billion of its budget at the end of the
fourth quarter. An amount of R168.6 million (6.82 per cent) remained unspent. It
was indicated that this under-spending was due to, among other things, the R116
million savings on the contractual agreements for 2010 FIFA World Cup
infrastructure related projects entered into by Sentec and Telkom. However, the
Departmental spending was also affected by a number of other factors, including
a high vacancy rate, non-disbursement of funds to receiving entities and delays
in Public Private Partnership (PPP) processes.
The Programme Production was allocated R25 million and only R5 million
(20 percent) was spent at the end of the fourth quarter. An amount of R20
million was not spent due to reprioritisation exercise that was done for
Broadcasting Digital Migration awareness. The Department could not spend R15.5
million allocated to the ICT Infrastructure Development Programme due to delays
in converting PPP process to national PPP. Furthermore R1.6 million was not
spent on the Administration Programme and an amount of R5.7 million on
Presidential National Commission was due to vacancies. Slow spending in
Presidential National Commission was also attributed to the development of
hospitals and municipality projects which were still in progress.
3.6
Rural Development and Land Reform
This Department received an adjusted budget of R6.4 million. During the
2009 Budget Adjustments, R250 million was added to the Land Reform programme
for comprehensive rural development, R2 million to Spatial Planning and
Information for salary increases and R13 million to Administration for salary
increases. The Department has under-spent by R536.4 million (8.39 per cent) at
the end of the fourth quarter. The Department reported that the major
contributing factor to the under-spending was the change of departmental
mandate which now included rural development, new programmes and a number of
vacancies. The under-spending emanated from the Administration, Land Reform and
Rural Development programmes.
An amount of R79 million was not spent on the Administration Programme
due to the non-implementation of the new structure and the cancellation of
recruitment tenders. The Department stopped using recruitment agencies and
decided to build internal capacity for recruitment purposes. The vacancy rate
in the Department further affected other areas of spending including
travelling, stationary and communication. Furthermore, leave gratuity payouts
to employees were less than anticipated.
The Committee was concerned about the number of critical posts that were
not filled by the Department and enquired about the plans to overcome this
challenge. The Department assured the Committee that it was busy with the
filling of vacant posts. It however indicated that it was difficult to find
other specialised skills such as land surveyors. The Department was embarking
on a bursary scheme in trying to counter this challenge.
The Land Reform Programme has under-spent by R407.3 million mainly due
to the non-disbursement of funds for the Land Reform Grant (Redistribution and
Tenure projects). An application to shift R500 million (above 8 percent of the
programme budget) from Land Reform to the Restitution programme was made to the
National Treasury. The National Treasury only approved R100 million to be
shifted in November 2009 and there was little time remaining to spend R400
million under the Land Reform programme.
It was also indicated that offers were made and accepted by land owners.
These commitments were entered into by the junior staff of the Department that
were delegated to do so. The Department has commitments of about R7.5 billion
which had since increased to R12 billion as a result of the courts compelling
the Department to pay. The Department was compelled to pay even where there was
no signed agreement but only the offer and substitute. Following the precedence
set by the courts through court decisions, more land owners are taking the
Department to court. The Minister had instructed the Department to settle all
court orders and it was reported that about R700 million had been paid on Court
Orders. The outstanding ones were still with the Deeds Office and would be paid
once registered. Land owners would be engaged because the court cases were
expensive and an engagement strategy was being developed to set terms of
engagement.
The Department reported that a further 4000 claims remained outstanding.
These claims had not been researched and could thus not be quantified. The
sitting costs for these claims were not known since the Department cannot quantify
them in monetary terms. The evaluation of these claims has not been done yet
since the research is still to be conducted to validate the claims. The
Department committed that this process will be finalised at the end of the 2010/11
financial year.
The Committee expressed its displeasure about the spending of considerable
sums of money on court cases and the unquantified costs that could put a future
burden on the fiscus. It was of the view that these funds could have been used
to settle claims. The Committee encouraged the Department to engage land owners
for out of court settlements. The Department reported that it would request R12
billion during the adjustments to deal with the backlog. This included funds to
buy the gazetted land, compensate beneficiaries and for developmental grant. The
Committee contested the R12 billion figure and looks forward to obtaining more
information and engaging the Department further during the adjustments period.
The Cadastral Survey programme has also under-spent by R13.6 million (9.35
per cent) due to lengthy recruitment processes and the establishment of offices
in the
3.7
Department of Minerals and Energy
The Department of Minerals and Energy was allocated R4.7 billion in the
2009/10 financial year. It spent R4.5 billion at the end of the fourth quarter,
which was an under-spending of R143.2 million (3 per cent). This was largely
due to delays in the submission of invoices from beneficiaries of the mining
subsidy. This under-spending emanated
from the under-spending on transfers and subsidies. The Department has spent
R3.5 million (96.5 per cent) of the R3.6 million budget for Associated Services
Programme. This included the Integrated National Electrification Programme (INEP)
Grant. While a number of households, schools and clinics particularly in rural
areas still lacked electricity, the Department under-spent in the INEP Grant.
INEP Grant was allocated R932 million but R899 million (96.4 percent) was
disbursed at the end of the fourth quarter. This was due to the late submissions
of requests for funds by municipalities and delays in finalizing service level
agreements between the Department and municipalities. The Department had also
under-spent on the INEP (non-grid electrification service providers) which was
allocated R84 million. It spent R1.2 million (1.5 per cent) of this budget. This was attributed to the delays in appointing
service providers and the signing of contract. The Assistance of Mines
programme was allocated R43.1 million but only spent R31.1 million (72.1 percent),
under-spending by R12 million.
The misalignment of national and local government financial year and plans
impacted negatively on the INEP spending. Municipal tender processes only started
after July once the budgets had been passed. In some cases, municipalities took
some time to plan for the spending of budget. The slow spending in this
programme was mainly as a result of lack of spending in some provinces. The
provinces under-spent as follows:
Elais Motsoaledi municipality under-spent by R1.5 million due to the
unavailability of network capacity to electrify 136 houses. It was reported
that the area lacked the bulk infrastructure to facilitate connections.
An amount of R3.3 million was not spent on Mookgopong municipality due
to the cancellation of a project. It transpired that this project had already
formed part of an Eskom project. The Committee viewed this as an indication of
lack of thorough planning and coordination on capital projects.
Nokeng tsa Taemane municipality could not spend R6.8 million. This was
due to the fact that the municipality intended to refurbish old network with
the INEP funding where there is no backlog.
This was mainly due to the lack of spending by the Madibeng municipality.
The under-spending was attributed to the lack of proper and sufficient planning
as 2008/09 projects were not yet complete. This municipality was also marred by
the illegal occupation of houses, a matter still to be resolved.
The Department has also reported a slow spending by R10.8 million (3.18
per cent) on the Electricity, Nuclear and Clean Energy programme due to the non-disbursement
of R5.25 million for Renewable Energy and R5 million for Working for Energy.
This was due to the delays in the finalisation of work plans of these
programmes. The Committee viewed the Working for Energy programme as one of the
initiatives developed to create jobs through the Expanded Public Works
Programme. The lack of spending in this area limited the potential to create such
jobs. An amount of R151 million was allocated for Mining Regulation but R147
million (97.6 per cent) was spent at the end of the financial year. This was
due to delays in the signing of contracts with the appointed service providers
and spending on projects aimed at rehabilitating un-owned Mines[1].
The Committee views the three year budgeting process (Medium Tern
Expenditure Framework/ MTEF) as an important reform in the budget system. The
excuse of misaligned budgets at national, provincial and local level could no
longer be accepted because the long term planning approach of government
acknowledged the misalignment.
3.8
Department of Water an Environmental Affairs
The Department of Water and Environmental Affairs was allocated R7.8
billion but had spent R7.6 billion (97.6 per cent) at end of the 2009/10
financial year. This translates to the under-spending of R187.1 million (2.4 per
cent) largely on current payments as well as on transfers and subsidies. The Water
Services programme was allocated R2.8 billion and R2.7 billion (93.6 per cent)
of this budget was spent at the end of the fourth quarter. The under-spending was
due to non-payment of certain invoices on goods and services as a result of
delays in procurement processes on sanitation and water projects. This was also
due to vacancies within this programme. The Water Resource Management programme
was allocated R4.1billion but spent R4 billion (98.7 per cent). The under-spending
of R52.9 million was due to transfers not being made to the Water Trading
Entity and to poor farmers and dam safety projects. An amount of R13.6 million
for the Water Services Operating Subsidy Grant for the refurbishment of water
scheme was not transferred to municipalities due to a lack of accountability by
municipalities. The Department had requested a rollover of R126.4 million from
National Treasury.
The Department is very critical in ensuring access to basic water
services. It was therefore concerning that certain households, schools and
clinics were still without water in certain areas yet the Department under-spent
in areas such as Water Services and Water Services Operating Subsidy Grant to
municipalities. This resulted in a lack of access to clean and running water,
which hampered government programmes of creating decent work and sustainable
livelihood.
3.9
The Department of Transport
The Department of Transport was allocated R24.2 billion and spent R24.5 billion
at the end of 2009/10 financial year. This was a R263.3 million (1.0 per cent)
over-spending attributed to the high spending on the bus subsidy in the Public
Transport programme. This programme was allocated R14.3 billion but the
Department spent R14.7 billion (102 per cent). Despite the overspending,
shifting of funds has been effected in this programme. It was noted that most
of the funds were made from various programmes. This included R17.7 million which
was shifted from other programmes to Transport Regulation and Accident
programme. In the same programme a number of sub-programmes reported an
expenditure of less than 100 per cent and funds were shifted to the Africa
Civil Aviation Commission Programme. This Programme spent 131.8 per cent of the
allocated budget.
The Infrastructure and Systems Grant was allocated R206.5 million but
only R106 million (51.3 percent) was disbursed at the end of the fourth
quarter. The Transport Logistics and Corridor Development Programme was
allocated R31.8 million and only R13.6 million (42.96 per cent) was spent. An
amount of R2.3 million of the Programme budget was shifted after the budget
adjustments. The shifting of funds might is an indication of lack of proper planning
by the Department. Appropriate measures are required to ensure accurate and
proper financial and programme planning.
4
Further analysis of departments’ spending issues
·
The Department of Home
Affairs has under-spent by R56.7 million on its budget mainly due to slow
spending in Immigration Services.
·
Statistics
·
Due to the early
realisation of high spending variance as a result of vacancies, the Department
of Labour shifted R93 million from the compensation of employees under Service
Delivery Programme. An amount of R16.3 million for Employment and Skills
Development Services was not spent due to the shift of the skills development
function to the Department of Higher Education. A rollover request was made to the
National Treasury regarding these funds. Furthermore, R5.34 million for the
Research Monitoring and Evaluation Agenda was not spent due to delays in tender
processes. The Department had applied for the rollover of R4.6 million from these
funds.
·
The Department of Human
Settlements under-spent by R233.3 million on its budget. This was due to
vacancies, consultants’ costs and acquisition of goods and services. This
Department had reported spending of less that 75 per cent in most of its
programmes. It reported an expenditure of 67.9 per cent on Administration, 66.5
per cent on Housing Policy, Research and Monitoring and 58.2 per cent on Housing
Planning and Development Support. The
under-spending on the Administration programme amounted to R53.9 million (32.14
per cent) due to vacancies, slow spending on office furniture and equipment,
slow spending on adverts for recruitment, and slow spending on transport as
well as travel and subsistence. The slow spending on the Housing Policy
Research and Monitoring resulted in an under-spending of R22.5 million (33.49 per
cent). This was due to savings made on printing, travelling and consultants.
The under-spending of R70.9 million (41.84per cent) on Housing Planning and
Service Delivery was due to the
under-spending on Human Settlement planning for implementation of the Community
Outreach Programme. This was intended to provide housing in Diepsloot.
·
The Department of Agriculture, Forestry and
Fisheries was allocated R367 million for Micro-Agricultural Institutions of
South Africa (MAFISA). At the end of the third quarter, the Department only
transferred 39.8 per cent of the funds. This trend significantly improved
during the fourth quarter with 100 per cent of these being reported as
transferred to receiving entities. It is important to note that the transfer of
funds by the transferring entity does not necessarily translate to the actual
expenditure by the receiving entity.
The
Committee noted that the Department had presented to Parliament its strategic
plan on MAFISA outlining its expected expenditure for the financial year
2009/10. An amount of R420 million was approved for loans, however only R66.1
million was disbursed at the end of the fourth quarter 2009/10 financial
year. The Committee was informed that in
some cases farmers were reluctant to take up the loans offered by the
Department and were more interested in the grants.
The
Department reported that it was reorganizing itself with the Land Bank to
address challenges observed by the Committee. It noted that its report was on
the situation at present but that improvements were expected in the near
future.
It
was reported that the Department received R146 million to address distressed
farms. The term ‘distressed farmers’ referred to three distinct types of
farmers:
1.
About 30 farmers who can pay but were
not willing to re-pay an amount of R50
million
2.
Those farmers who were trying to
ensure that their farms were productive. They would have to give over ownership
of the farms to the Department and for five years would not be repaying the
loan. After five years they would repay the loans and regain ownership of their
farms
3.
deserted farms which the Land Bank
would have to repossess
It
was reported that these were farmers who had borrowed money from the Land Bank.
After three months of not paying, the bank regards farmers to be on areas and
the portfolio could be restructured after six months. The pre-legal process
then takes place which normally takes about a year or two where the bank engages
the farmer to look into the problem. As a final step, the bank either takes
legal action and/or repossession is effected.
The
Committee sought to establish whether the Department had any historical data in
terms of programmes such as that of distressed farms. Such data would entail
information about previously distressed farms and what interventions were
undertaken and the subsequent results. The Department reported that CASP, Land
Care, MAFISA, Agri-BEE and Ilima/Lestema were part of a turnaround strategy
that it had put in place and would present to the Committee at the earliest
opportunity. The Committee resolved to invite the Department again to present
its turn around strategy.
Furthermore, funds
amounting to R48.6 million were allocated to AgriBEE. No funds were transferred
to the Land Bank for AgriBEE at the end of the third quarter. However, the
fourth quarter expenditure report reflected a drastic improvement in this area
with 100 per cent of these AgriBEE funds being transferred to the Land Bank. In
ascertaining the reasons for the delayed transfers the Department reported that
the funds were only transferred in the fourth quarter due to an investigation
initiated by the Land Bank into the management of the AgriBEE fund. It added
that no funds had been disbursed by the Land Bank to beneficiaries by the end
of the fourth quarter. Funds would be disbursed during the course of 2010/11
after the signing of a “new” Memorandum of Agreement (MOA) between the
Department of Agriculture, Forestry and Fisheries and the Land Bank.
·
The National Treasury’s under expenditure amounted to R176.8 million, which was 0.3 per cent of
the total appropriated funds. The under-spending emanated
from the Asset and
Liability Management, Financial Management and Systems, Provincial and Local Government Transfers and Fiscal
Transfers programmes.
The Committee’s main focus was on the Neighbourhood
Development Partnership Grant (NDPG) under Provincial and Local Government
Transfers programmes. National Treasury reported that slow spending in this
area was affected by the following:
-
A lack
of spending by some municipalities resulting from lack of capacity.
-
Delays and irregularities in tender processes.
-
The need for intensive support
and monitoring by a third of the recipient municipalities.
-
Low level of accuracy in
cash-flow forecasting for large, multi-stakeholder programmes.
-
The need for municipalities to
meet the conditions and objectives of the grant as per the Division of Revenue
Act; and municipal capacity for budgeting.
Due
to the lack of understanding by the municipalities of the Neighbourhood
Development Partnership Grant, the National Treasury was providing technical
assistance to municipalities in an effort to address this challenge. The
Committee was of the view that this grant is complicated for municipalities and
it needs simplification.
Members of the Standing Committee on
Appropriations and Portfolio Committee on Public Works both emphasised that
National Treasury should set an example for other departments in its spending
trends since it deal with budget allocations.
5
Findings
5.1
Out of the adjusted budget
of R408.9 billion, national departments have spent R403.8 billion at the end of
the fourth quarter. This was an under-spending of R5.1 billion (1.2 per cent).
A year-on-year spending benchmark reflected a declining spending trend as
compared to 99.81 per cent expenditure in the previous financial year.
5.2
Approximately ten
departments have spent within the range of 13.9 to 72.7 per cent of capital budgets.
These include the departments of Trade and industry (13.9 per cent), Human
Settlements (37 per cent), Labour (44.1 per cent), Health (47.5 per cent)
International Relations and Cooperation (60.4 per cent), CoGTA (61.7 per cent),
Presidency (62.9 per cent), National Treasury (71.5 per cent) and Rural
Development and Land Reform (72.7 per cent).
5.3
Some national departments
did not transfer grant funds that amounted to R750.8 million to receiving
entities. The table below indicates the grants and amounts that were not be
transferred by different departments:
Table 2: Under-spending on
conditional grants
5.4
While the country was
facing increases in the unemployment rate, a number of departments reported
slow spending due to vacancies. Approximately 16 departments have under-spent
on their budgets due to vacancies. These included the departments of Justice and
Constitutional Development, Communications, Human Settlements, Rural
Development and Land Reform, Cooperative Governance and Traditional Affairs,
Public Enterprises, Science and Technology, Trade and Industry, Social
Development, Sports and Recreation, Statistics SA, Department of Public Service
and Administration, Education, Labour, Independent Complaints Directorate and
Water Affairs.
5.5
Notwithstanding section 43
of the PFMA and the Treasury Regulation 6, the level in which rollovers and
shifting of funds were made by the departments had a potential to impact
negatively in the delivery of services. The table below indicates nine
departments which were expected to request rollovers of funds amounting to R1.5
billion during the budget adjustments period.
Table 3: Possible Requests
for the Rollover of Funds
5.6
Irregularities in tender
processes that result in tenders either being delayed or cancelled was becoming
a serious threat in the implementation of budget and delivery of services.
5.7
The Department of transport
had over-spent by R263.3 million due escalating expenditure relating to bus
subsidies. Spending on the bus subsidy continues to pose a challenge for the
Department of Transport.
5.8
Despite the MTEF, planning
and monitoring continue to pose challenges across sector departments.
5.9
The Committee
found that the Department of Rural Development had utilised an amount of
approximately R700 million of its budget to settle court orders based on
litigation awarded in favour of applicants.
5.10
A further
4000 claims against the Department of Rural Development and Land Reform could
not be quantified. This could put a further strain on the department’s budget.
5.11
The
Department of Arts and Culture had not developed an adequate Risk Management
Strategy to safeguard departmental assets.
5.12
Some
departments still used the misalignment of financial years between the
national, provincial and local governments as a reason for low spending. The
Committee regarded this as an excuse for underperformance adding that the
reforms in management of government finances including the MTEF specifically
caters long term planning.
6
Recommendations
The Standing Committee on Appropriations, having heard evidence on and
considered the spending trends of the above-mentioned government departments as
at 31 March 2010, recommends the following:
6.1
National Treasury should
prepare and submit a turnaround plan to address the approved rollover funds
that result to costs escalation of some capital projects to Parliament within two
months after the adoption of this report by the House.
6.2
All government departments
should attend to filling of critical vacancies to improve service delivery.
6.3
The
Department of Transport should submit a detailed report outlining its plans to
address over-spending on the Bus Subsidies programme to Parliament within two
month after the adoption of this report by the House.
6.4
The
Department of Rural Development and Land reform should endeavour to settle
disputes with land owners, rather than reverting to courts and legal actions.
6.5
The
Department of Rural Development and Land Reform should:
6.5.1
Disclose
the amount of money that was budgeted for the legal costs for the 2009/10
financial year, and
6.5.2
Submit a
detailed report listing all litigation matters brought against it and attach
costs of such matters to Parliament within three months after the adoption of
this report by the House.
7
Conclusion
7.1
It is important to note
that the figures used in this report had not been audited; they were reported
figures as provided by departments and the National Treasury in line with
section 32 of the Public Finance Management Act. Due to the recurring nature of
the problems related to under and over spending, the Leader of Government
Businesses will be engaged to ensure that the implementation of and
accountability on the Committee’s recommendations are enhanced. All government
departments should establish relevant systems with the view to ensuring report
back mechanisms in relation to Committee recommendations in order to address
the spending gaps identified during the scrutiny of the quarterly report.
Report to be considered