Departments of Cooperative Governance and Traditional Affairs & Water Affairs 3rd Quarter 2011/12 Reports

Meeting report

Department of Cooperative Governance & Traditional Affairs (COGTA) 3rd Quarter 2011/12 Report
In his presentation, Mr Mawethu Mthuyda, Chief Financial Officer: Department of Cooperative Governance and Traditional Affairs, said that actual under-expenditure in the Department amounted to R16.4 million. This was largely due to a large proportion of its budget being taken up by transfers to municipalities and other entities which did not necessarily fall under National Treasury’s expenditure patterns of 25% per quarter. Transfers were instead done as per its payment schedule, agreed upon between it, National Treasury and municipalities. According to its projected cash flow, transfers were in line with the payment schedule, at 65.6%, while Disaster Relief was at 0% owing to outstanding assessment reports.

The Department had spent 69.7% of its Compensation to Employees allocation. This under-expenditure was due to vacant posts that were filled late in the year. Of its Goods and Services budget, the Department had spent 57.5% as a result of projects having either been withheld or deferred to the next financial year.

Payments of Capital Assets had seen under-expenditure of 51.9%. This was due to R5.6 million within the Community Works Programme not being spent as a result of implementing agents being appointed late in the financial year.

Transfers paid according to the payment schedule after institutions had fulfilled all the conditions and requirements for transfers included the Municipal Infrastructure Grant (62.7%), the Municipal Improvement System Grant (93.4%) and the Community Works Programme (69.7%). This was largely attributable to the late receipt of invoices from service providers.

Transfers which indicated symptoms of under-spending included the Local Government Equitable Share (68.4%), the Councillor Once-Off Gratuity (0%) and the Municipal Disaster Relief (0%). Challenges with the Councillor Gratuity included the process of gazetting, the verifying of councillors, and tax directives having taken too long to process. The process here was intensified over the fourth quarter and notable progress had been registered. With reference to the Municipal Disaster Relief, assessment processes had taken too long to complete. The Department and National Treasury were currently working on the best way to ensure speedy and appropriate distribution of funds, however.

Measures to improve expenditure included the establishment of a Budget Committee which would serve as an advisory committee for the preparation, adoption, administration and monitoring of the budget. The Department would also be adopting a project management approach, implementing its approved procurement plan and following a forward planning concept.

Discussion
Mr M Swart (DA) said that, given the unacceptably poor spending reported, especially on disasters, the Committee should re-look at approving the requested budgets of low-spending departments. What steps had been taken to address the Auditor-General’s concerns around fruitless and wasteful expenditure? Could further explanation be provided around the poor spending on capital expenditure?

Mr G Snell (ANC) asked how the Department would like to see Chapter 3 of the Constitution changed in order to ensure better service delivery.

Ms R Mashigo (ANC) said that the issue of councillors not receiving the gratuity owed to them could have been avoided if there had been better planning. The Department’s continual request for rollovers in this regard was unacceptable and pointed towards poor management. Was its management structure effective? Could the Committee be provided with a report on the Department’s Community Works Programme? What, if any, was the difference between the Siyenza Manje and Municipal Infrastructure Support Agency (MISA) programmes?

Mr Muthotho Sigidi, Acting Director-General – Department of Cooperative Governance and Traditional Affairs, answered that there were two components in the Siyenza Manje programme that were administered by the Development Bank of Southern Africa (DBSA): financial and infrastructure. The infrastructure component came to the Department through MISA. However, as MISA was an agency which needed to be finalised as a government component, the Department felt that all engineers that were in the DBSA should continue to do work on behalf of the Department until the President had signed MISA into being a government component. More detail around this matter, the Community Works Programme, the payment of councillor’s gratuities and disasters could be provided to the Committee in comprehensive reports.

Mr Ricardo Hansby, Deputy Director-General: Department of Traditional Affairs and Cooperative Governance, added that although there were challenges, the Community Works Programme was successful. Under-expenditure here was in fact a saving, with 10% covering the Department’s costs as well as the design of the programme.

The Chairperson commented that 10% was in contravention of what the Division of Revenue Act stated on this.

Ms L Yengeni (ANC) asked what was defined as a ‘saving’. Where did this saving come from?

Mr Hansby answered that these were surpluses. As all the money for programme management had not been spent, some was diverted to sites which allowed for more people to be employed.

Ms Yengeni said that this could not be seen as saving as such.

The Chairperson said that more details around this could be provided by the Department in a detailed report on the programme.

Mr J Gelderblom (ANC) said that spending on the Municipal Infrastructure Grant (MIG) was of major concern, particularly as this programme was directly linked to job-creation. Did councillors have to have served a full term in order to receive the gratuity? What was its relationship with other government departments?

Ms Shanaaz Majiet, Deputy Director-General: Provincial Municipal Government Support – Department of Traditional Affairs and Cooperative Governance, answered that councillors had to have served a full term to qualify for the gratuity.

Mr Hansby added that the Department worked together with various other departments through inter-Governmental structures, such as the Department of Human Settlements and the Department of Water Affairs. Although these collaborations were generally at higher levels, it was intended to take such partnerships down to a local level as well.

Ms D Nlhengethwa (ANC), Chairperson of the Portfolio Committee on Cooperative Governance and Traditional Affairs, said that the Portfolio Committee members had previously requested a progress report on the Community Works Programme. The Department should also provide reports on the Siyenza Manje and MISA programmes. The presentation made by the Department lacked any mention of internal audits within the Department or how it was supporting municipalities (either through motivating well-performing ones and/or assisting poorer-performing ones).

Ms W Nelson (ANC), Member of the Portfolio Committee on Cooperative Governance and Traditional Affairs, asked what monitoring mechanisms were in place to ensure better spending. What monitoring mechanisms were in place to ensure that monies allocated for disaster relief in a particular area was indeed spent on this? What was the status of the investigations into six cases of alleged fraud? The Department should provide a detailed report on the issue of councillors’ gratuities.

Mr Ken Terry, COGTA National Disaster Management Centre Head, answered that the Minister took this matter seriously and had created two posts at senior level to help redress this situation and assist with the monitoring of the disbursement of these funds.

Mr Mthuyda added that all cases involving irregular expenditure had been included in the Post-Audit Action Plan which could be made available to the Committee.

The Chairperson said the issue of councillors not being paid their gratuity was of major concern. Aside from ways to speed up this process, what also needed to be looked into was whether these monies could be subjected to tax. Of concern also was the fact that there was notably poor spending when it came to the provision of services, yet spending on the compensation of employees was adequate. Under-spending could be avoided given proper planning. Certain funds allocated in the Community Works Programme were not intended for the payment of service providers but for labour done. If budgets were not spent on actively improving the lives of ordinary South Africans, this translated into a failure to serve the public. The Committee should be provided with a report on how much was spent on the use of consultants. Poor spending on the Municipal Infrastructure Grant was of major concern as this was directly linked to the creation of jobs. Why had there been significantly poor spending on disasters? Given that the Department spearheaded the Operation Clean Audit initiative, what were the reasons for the Department receiving a qualified audit report in 2010/11? Was this related to poor regulation of its supply chain management?

Mr Mthuyda answered that under-expenditure was seen in a very serious light within the Department.

Ms Majiet added that the Department understood the need for this issue to be resolved. As such there was a project team currently working on resolving this matter. All gratuity payments had to be made by 20 May 2012. Thus far, only 20% of payments had been made. The Department would look into whether these monies were taxable. Reasons for this challenge included the fact that there were a number of administrative issues which were not in place initially, such as the Department not having all councillors’ bank details, which would have allowed for payments to be made. These details were, however, now with the Department so the process could be speeded up. The system would be institutionalised so as to avoid a repeat of this situation. The Department apologised for any hardships this matter might have caused.

Ms Yengeni asked for a report to be provided on its Disaster Relief programme. What constituted a disaster? Were certain disasters afforded more importance than others? What process had to be followed to be allocated of these funds? What plans were in place to address the qualified audit report it had received? What process was used to recoup money lost as a result of fraudulent activities?

Mr Terry answered that most major disasters were weather-related and took place primarily during monsoon season. Immediately after a disaster was reported, a verification of this was done by the municipality or province involved, who then forwarded to the Department a declaration based on this. The Department would then assist with immediate disaster relief. Payments for the last two disasters, which had occurred in KwaZulu-Natal and Limpopo, were finalised within two months. Engineers had also been deployed to different disaster areas to conduct verifications of these areas for post-disaster reconstruction to take place. The Department would provide the Committee with a comprehensive breakdown of the measures it had in place to speed up the process and address the challenges.

Mr Mthuyda added that the Department could make the report around its comprehensive Post-Audit Action Plan available to the Committee.

Ms Yengeni asked what payments were made to disaster areas. When were such monies paid and how were payments made?

Ms Nelson asked what, if any, collaboration there was between its disaster management programme and the Department of Human Settlements. What medium-term interventions were in place to assist areas affected by disasters?

The Chairperson said the Department needed to present the Committee with a detailed report on the issues raised by Members. The Committee would have to work closely with the Portfolio Committee on Cooperative Governance and Traditional Affairs to look at the issues raised. The taxation of councillors’ gratuities as well as transfers needed to be looked into for explanation in greater detail. The Department should respond to Members’ unanswered questions in writing and provide the Committee with the requested reports by 12 May 2012.

Department of Water Affairs 3rd Quarter 2011/12 Report
In her presentation, Ms Nthabiseng Fundakubi, Chief Financial Officer (CFO): Department of Water Affairs, said that the Department’s Regional Implementation and Support programme took up the bulk of its budget. Of the budget allocated for this programme the Department had spent 52%, while it had spent only 34% of its National Water Resource Infrastructure Programme budget. It had also spent 63% of its Compensation to Employees budget, 84% of its Goods and Services budget, 50% of its Transfers and Subsidies budget and 38% of its Payments for Capital Assets budget.

Of its Regional Implementation and Support budget, it had spent 57% of its Operational budget, 46% of its Bulk Infrastructure budget, 74% of its Transfers budget, 17% of its Water Services Projects budget, 14% of its Borehole budget and 3% of its Disaster budget.

Under-expenditure in its Administration Programme (Programme 1) was largely attributable to unfilled vacancies, the late submission of invoices by service providers of SITA- and IT-related services, as well as the late submission of invoices by the Department of Public Works in respect of office accommodation.

Under-expenditure in its Water Sector Management Programme (Programme 2) was largely as a result of the number of unfilled vacancies which, in turn, was primarily because of Occupation Specific Dispensation (OSD) requirements being too complex, the late submission of invoices in respect of the construction of water gauging stations, and delays in the implementation of the Acid Mine Drainage programme.

Under-expenditure in its Water Infrastructure Management Programme (Programme 3) was due to the late submission of invoices as a result of a change in the submission of invoices, as well as relevant supporting documents.

Reasons for under-expenditure in its Regional Implementation and Support Programme (Programme 4) included unfilled vacancies, some projects still being at planning stages, the appointment of services providers only taking place within the month of review and special projects, such as the Accelerated Community Infrastructure Project (ACIP) and Regional Bulk Infrastructure Grant (RBIG) not being measurable by means of a straight line approach, as spending took place in line with their implementation phases.

Additional spending challenges in this Programme included transfer payments being done to municipalities as per the Division of Revenue Act-stipulated payment schedule, transfers to various municipalities having been rejected due to incorrect banking details, delayed payments as a result of municipalities having submitted incomplete information, municipalities and agents being slow in appointing contractors and the late submission of invoices for work done by suppliers.

The Department’s recovery plans for challenges with relation to transfers in this Programme included regular engagement with National Treasury and municipalities to match and reconcile banking details, and ensuring adherence to payment schedules. Its recovery plans for the Operational Budget for this Programme include the filling of critical vacancies at all levels and the reprioritisation of funds and engagement with the Department of Public Works and National Treasury for the procurement of new and/or additional office buildings.

Under-expenditure in relation to its Water Sector Regulations Programme (Programme 5) was largely attributed to unfilled vacancies, projects still awaiting approval or not being able to take off as a result of staff shortages and the late submission of invoices.

Its International Water Co-operations Programme (Programme 6) noted under-expenditure as a result of unfilled vacant posts, international commitments undertaken due to political dynamics and postponements and the late submission of invoices for work done by suppliers.

Mr Fazel Ismael, Acting Chief Financial Officer: Water Services Trading Entity, said that there was a timing difference between when payments were made and when claims were made, as well as from a verification point of view. As at 31 December 2011, the Department had spent more than what was reflected in the main account. This was due to payments not being made as a result of lack of adequate supporting documents. However, once all necessary information had been verified in January 2012, these payments had been made. Despite this, expenditure here remained low. The Department’s plans to address this under-expenditure included the re-prioritisation of funds from non-performing projects to performing ones, the development of detailed project plans, project scheduling per activity, the speeding up of the procurement process, ensuring that contractors were invoiced on time, regular progress meetings with the Minister and Director-General, as well as the establishment of a CAPEX committee.

Discussion
Mr Snell commented that the marked improvement in expenditure at the end of the fourth quarter (figures of which had been included in the presentation) called the credibility of the presentation into question.

Mr Gelderblom commented that the poor spending on the borehole budget was of major concern. The issue of accommodation in the regions needed to be addressed urgently. What assistance was the Department providing to municipalities in relation to the provision of accurate banking details? Who was responsible for the issuing of water licences and what were the legal costs involved here?

Mr Van Dyk asked what items were on the Capital Assets Programme? What defined an ‘unperformed project’, why were these budgeted for and why were they ‘unperformed’?

Mr Swart asked what the backlog was on the issuing of water licenses. What measures were in place to address the Auditor-General’s concerns around its procurement processes as well as its dysfunctional Internal Audit Unit?

Ms Yengeni commented that the Department should, in its next meeting with the Committee, brief the Committee on how it was looking at addressing the concerns raised by the Auditor-General. It should also brief the Committee on why the improvement in expenditure by the end of the third and fourth quarters was so significant.

The Chairperson said that as a result of time constraints, the Department should respond to the Members’ questions in writing. In its follow-up meeting with the Committee, the Department would need to explain the significant difference between expenditure figures at the end of the third quarters and those at the end of the fourth. The Committee had a long history of struggling to gain the Department’s full cooperation in many matters, though this situation would hopefully be turned around with the appointment of the Director-General.

The meeting was adjourned.