ATC150603: Report of the Standing Committee on Appropriations On The Third Quarter Expenditure Patterns for the 2014/15 Financial Year, dated 3 June 2015

Standing Committee on Appropriations

REPORT OF THE STANDING COMMITTEE ON APPROPRIATIONS ON THE THIRD QUARTER EXPENDITURE PATTERNS FOR THE 2014/15 FINANCIAL YEAR, DATED 3 JUNE 2015
 

The Standing Committee on Appropriations, having heard briefings and considered the third quarter expenditure patterns of national departments for the 2014/15 financial year, reports as follows:

 

1. Introduction

 

The Standing Committee on Appropriations (the Committee) was established in terms of section 4(3) of the Money Bills Amendment Procedure and Related Matters Act, No.9 of 2009. The Act requires the Committee to consider and report on spending issues, and on actual expenditure published by the National Treasury. The Committee has adopted a tradition of inviting both National Treasury and the affected departments to account on government spending. This consultative approach gives the Committee an opportunity to interrogate departments on their spending with a view to identify and strengthen gaps in public spending. The Committee is established as a strategic centre to flag issues which might impact negatively on service delivery through scrutiny of government spending. As such, the Committee has taken a decision to move swiftly towards balancing its expenditure monitoring with actual performance.

 

This report provides a detailed overview of government spending for the period 1 April 2014 to 31 December 2014. It intends to highlight spending patterns of national departments and to draw the attention of Parliament and the Executive to findings and recommendations made for improved public spending. The section hereunder provides an overview of the expenditure for the period under review.

 

1. Overview of the 2014/15 third quarter expenditure

 

As per Table 1 below, the National Budget for 2014/15 is R1 139.6 billion. Of this,
R504.2 billion, or 44.2 per cent, is committed for Direct Charges against the National Revenue Fund.  The National Departments’ budget amounts to R636.6 billion. R433.7 billion of this, or 68.1 per cent, is allocated to be transferred by departments to support households, other spheres of government, organisations, agencies and institutions, and R3.6 billion, or 0.6 per cent, is spent on Financial Assets. This leaves R199.3 billion allocated to be spent by national departments on operations.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Table 1:Allocations per Economic Classification for 2014/15

Economic Classification    2013/14       2014/15     R million  Available budget¹  April to December expenditure April to December percentage spent  Main appropriation  Available budget¹  April to December expenditure April to December percentage spent Expenditure growth 12/13 to 13/14 April to December²                   Current payments      172 347.5     121 423.9 70.5%  180 964.3       182 377.2     129 959.3 71.3% 7.0% Compensation Of Employees      112 829.6               83 261.2 73.8%  120 429.9                121 727.7               89 786.9 73.8% 7.8% Goods and Services         59 431.3                38 151.5 64.2%  60 484.1                 60 599.5                40 166.9 66.3% 5.3% Interest and Rent on Land 86.6                        11.2 12.9%  50.3                         50.0                          5.5 11.0% -50.7%                   Transfers and Subsidies      398 254.1    295 735.5 74.3%  433 125.5       433 712.3     321 699.9 74.2% 8.8% Payments for Capital Assets        15 377.6        7 268.5 47.3%  17 689.1         16 887.4         8 326.0 49.3% 14.5% Payments for Financial Assets         3 047.2         3 117.2 102.3%  3 570.5           3 641.9         2 146.5 58.9% -31.1%                   Sub total     589 026.4     427 545.1 72.6%  635 349.4       636 618.9      462 131.7 72.6% 8.1% Direct Charges Against the National Revenue Fund  464 367.0  337 880.3 72.8%        504 213.0      503 870.8     367 293.0 72.9% 10.8% Total  1 053 393.4  765 425.4 72.7%      1 139 562.4    1 140 489.8     829 424.7 72.7% 9.3% 1. After adjustments                 2. Nominal                 Source: National Treasury

Of the available budget for operations, departments have so far spent R138.2 billion, or 69.3 per cent. In particular, R89.8 billion was spent on Compensation of Employees, and R40.2 billion spent on Goods and services. The largest single portion was R52.6 billion spent on compensation and equipment for police services. Also significant is spending on compensation and equipment for defence and correctional services. Upward salary adjustments also contribute to the significant growth under the departments of Defence and Correctional Services.

 

National departments have spent R8.2 billion on Capital Assets, representing an increase of 13.4 per cent. The largest portions of the Capital spend are under the departments of Water and Sanitation and Police – mainly for the Regional Bulk and the building and upgrading of Police stations respectively. There has also been a significant increase in expenditure by the Department of Education on capital assets. This is mainly due to an improvement in spending on the School Infrastructure Backlogs grant. Overall, total funds spent on operational expenditure during quarter 3 were 7.4 per cent higher than in the same period in the previous financial year.

 

With regards to transfers, Departments have so far transferred R321.7 billion, or 74.2 per cent, of the available budget for transfers. The largest single portion of this was R89.7 billion of social grants transferred to households through the department of Social Development. The Provincial Equitable Share under the department of Cooperative Governance and Traditional Affairs makes up the next largest element of transfers. After this, various transport infrastructure and operational grants transferred under the department of Transport and university subsidies under the department of Higher Education and Training represent the largest transfer of funds. Compared to the same period in the previous financial year, total funds transferred by the end of quarter 3 increased by 8.8 per cent

 

The budget allocation transferred has increased when compared to the same period in the previous financial year at a nominal rate of 8.4 per cent, which is equivalent to R25.0 billion. The rand value of spending growth was greatest within the department of Social Development, driven by increases in beneficiary numbers and inflationary adjustments for social grants. The Department of Transport shows the next highest increase in funds transferred mainly due to higher allocations to the Passenger Rail Agency of South Africa for the rolling stock fleet renewal programme. Following this the largest increases are under the departments of Higher Education and Health, mainly for University Subsidies and health grants to Provinces, respectively.

 

There were declines in funds transferred when compared to the previous financial year under the Department of Communications, in line with reduced allocations to Telkom and Sentech for the school connectivity and dual illumination projects respectively. After this, the largest decrease in funds transferred is under the Department of Rural Development and Land Reform primarily due to lower spending on Restitution Claims.

 

National departments have spent and transferred R462.1 billion to the end of quarter 3, whilst having originally scheduled drawings of R480.2 billion leaving a lag of R18.0 billion at this point in the year. The Department of Home Affairs spent or transferred R439.1 million more than originally scheduled during the first three quarters of 2014/15. This was mainly due to litigation invoices and a once-off membership fee paid to the International Organisation on Migration and this was expected to be covered within the departmental budget. The Departments of Environmental Affairs, Public Enterprises, Government Communication and Information System, and Sport and Recreation South Africa have also spent or transferred slightly more than the originally scheduled drawings during the first three quarters. National Treasury submitted that it will monitor these spending trends closely to ensure that they fall within the scheduled budget. 

 

The following are the departments in which spending lags scheduled drawings by the greatest amount, which represents 98% of the total lag.

 

• The Department of Cooperative Governance’s spending lagged scheduled drawings by R2.8 billion.  This was primarily because equitable share payments have been withheld in some municipalities to offset MIG payments and Municipal Infrastructure Grant (MIG) transfers due to slow performance. In addition, there have been lower than expected payments for the Disaster Relief Grant.

 

• The Department of Water Affairs and Sanitation expenditure lagged scheduled drawings by R2.8 billion. This was mainly due to the moratorium on the filling of vacant posts together with claims and invoices having not yet been received for work done by contractors on various projects under Regional Bulk Infrastructure, Accelerated Community Infrastructure projects and Municipal Water Infrastructure grants.

 

• The Department of Energy expenditure lagged scheduled drawings by R1.4 billion.  This was due to the Energy Efficiency and Demand Side Management Grant (EEDSM) payment to Eskom for the implementation of the Solar Water Heater Programme which has not yet been paid due to challenges experienced by the implementation agent.

 

• The Department of Justice and Constitutional Development’s expenditure lagged scheduled drawings by R1.2 billion. This was mainly due to claims and invoices not yet being received for accommodation charges and for the Criminal Justice System Modernisation programme, together with non-filling of vacant posts and slower than expected implementation of infrastructure projects by the Department of Public Works.

 

• The Department of Trade and Industry’s expenditure lagged scheduled drawings by R1.2 billion. This was mainly because an extension was granted for the submission of claims related to the Manufacturing Competitiveness Enhancement Programme(MCEP) Console.  Further, payments related to the Special Economic Zones Investment incentives are only now being finalised.

 

• National Treasury’s spending lagged scheduled drawings by R1.1 billion. This is mainly because the Jobs Fund paid grant advances to only 5 out of a potential 22 projects (leading to NT taking over administration from the Development Bank of Southern Africa, and declaring R561.1 million during AENE). Further, the transfer payment to the Post Bank of South Africa was withheld as the entity had not yet spent funds that were transferred in the 2013/14 financial year due to the revision of the project implementation plan.

 

• The Department of Higher Education and Training’s expenditure lags scheduled drawings by R0.8 billion. This was mainly because of the infrastructure grants to universities that have not yet been disbursed as the department was waiting for submissions of infrastructure reports from universities.

 

• The Department of Science and Technology had spent R4.7 billion by the end of quarter 3, whilst originally scheduling drawings of R5.9 billion. This was mainly due to delays in processing project payments as a result of surpluses from funds transferred earlier in the financial year.

 

 

1. Spending by departments at the end of the third quarter of the 2014/15 financial year

 

The National Government consists of 43 budget votes in total, of which 10 departments were identified to have reported under or over expenditure. These departments included: the Departments of Water & Sanitation; Energy, Science & Technology;Cooperative Governance; National Treasury; Human Settlements; Health; Basic Education, Public Service and Administration; and Public Enterprise. Table 2 below provides the actual expenditure of the 10 selected departments for the period 1 April 2014 to 31 December 2014.

 

 

 

 

 

 

 

 

 

 

 

Table 2: Dashboard for 2014/15 third quarter expenditure performance against approved targets

Department	Allocation 2014	Projected Expenditure	Actual Expenditure	Variance (Under/ Over expenditure)	% of Variance against Projected
Water & Sanitation	R13.6 billion	R8.9 billion	R6.1 billion	R2.8 billion	31.4
Energy	R7.4 billion	R6.6 billion	R5.2 billion	R1.4 billion	21.2
Science & Technology	R6.5 billion	R5.9 billion	R4.7 billion	R1.2 billion	20.0
Cooperative Governance and Traditional Affairs	R63.4  billion	R43.8 billion	R41.0 billion	R2.8 billion	6.3
National Treasury	R26.7 billion	R18.7 billion	R17.6 billion	R1.1 billion	5.9
Human Settlements	R29.4 billion	R21.3 billion	R20.6 billion	R552.4 million	0.02
Health	R33.9 billion	R25.5 billion	R24.9 billion	R591.9 million	2.3
Basic Education	R19.6 billion	R16.7 billion	R15.8 billion	R920 million	5.5
Public Service	R875 million	R664.5 million	R602.8 million	R61.7 million	9.2
Public Enterprise	R322.9 million	R195.4 million	R228.2 million	(R32.8 million)	(16.8)

Source: National Treasury and own calculations

 

In light of the above, the Committee invited the following departments for hearings on the Third Quarter Expenditure for the 2014/15 financial year:

 

• Department of Energy;
• Department of Science & Technology;
• Department of Health; and
• National Treasury and the Department of Water & Sanitation were requested to make a written submission.

 

                3.1            Department of Energy (Vote 29)

 

The Department of Energy (the Department) was allocated an amount of R7.4 billion for the 2014/15 financial year after adjustment from which R5.2 billion or 70.5 per cent had been spent during the period under review. The Department originally projected to spend R6.6 billion by the end of the third quarter resulting in under expenditure of R1.4 billion. The Department has however reported on a year-to-date budget of R5.7 billion during the briefing to the Committee. The reported reason for this variance was the Department’s drawing schedule that was revised due to the cancellation of the implementation of the Solar Water Heating (SWH) programme. Therefore, the expenditure bythe end of the period under review was R5.2 million which resulted in under expenditure of R491.3 million or 8.6 per cent of the total amount of R5.7 billion.

 

In terms of Economic Classification, Compensation of Employeesrecorded an expenditure of R196.7 million or 68.8 per cent had been spent from theyear-to-date budget of R217.9 million by the end of the third quarter. Good & Services was allocated R157.8 million and reflected an expenditure of R143.8 million or 58.8 per cent. Transfer & Subsidies which comprised of 92.8 per cent of the Department’s total adjusted allocation showed a spending of R4.8 billion or 71.0 per cent of a year-to-date budget of R5.3 billion, and Payment for Capital Assets reflected an expenditure of R2.7 million or 52.1 per cent of a budget of R4.0 million.

 

3.1.1    Expenditure per programme

 

The Department’s budget comprises of six programmes, i.e. Administration; Energy Policy and Planning; Petroleum and Petroleum Products Regulation; Electrification and Energy Programme Management; Nuclear Energy; and Clean Energy. The table below will provide the expenditure under each programme by the end of the period under review.

 

Table 3: Department of Energy Expenditure per programme – 31 December 2014

Sub programme	Year-to-datebudget	Actual expenditure	Variance	Percentage spent
	R0’00	R0’00	R0’00
Administration	178,286	182,996	-4,710	71.12%
Energy Policy and Planning	40,653	31,540	9,095	54.80%
Petroleum and Petroleum Products Regulation	63,093	39,612	23,481	46.86%
Electrification and Energy Programme Management	3,568,205	3,462,571	105,634	82.27%
Nuclear Energy	831,535	809,960	21,575	95.99%
Clean Energy	1,050,002	713,821	336,181	35.94%
Total	5,731,756	5,240,500	491,256	70.46%

Source: Department of Energy(2014)

 

 

The programmes which recorded significant under expenditure are discussed in detail hereunder:

 

Clean Energy: Programme 6 reflected an expenditure of R713.8 million or 35.90 per cent against a year-to-date budget of R1.0 billion which resulted in an expenditure variance of R336.1 million. The reported reasons for the lag in expenditure were as follows:

 

• The contractbetween the Department and Eskom regarding the implementation of the SWH programme has been cancelled in October 2014.
• R27 million of conditional grant payments to some municipalities was withheld due to non-compliance with the 2014 Division of Revenue Act (DORA) and conditions attached to grant payments.
• R33.5 million was re-allocated from six municipalities to other municipalities during October 2014 under the Energy Efficient Demand Side Management Programme (EEDSM) due to failure to comply with conditions of the 2014 DORA.
• Delays in access to public buildings for installation of smart meters through the South African German Energy Programme which has led to delays in the appointment of the pre-energy audit service provider.

 

Petroleum and Petroleum Products Regulation: Programme 3 showed an expenditure of R31.5 million or 54.8 per cent of a year-to-date budget of R40.6 million therefore resulting in an expenditure lag of R23.5 million at the end of the period under review. The reported reasons for the under expenditure were due to vacancies and delays in the commencement of major projects such as the Fuel Specification Testing project.

 

 

Energy Policy and Planning: Programme 2 reflected an expenditure of R31.5 million or 54.8 per cent of a year-to-date budget of R40.6 million which resulted in an expenditure lag of R9.0 million by the end of the third quarter. The main reported reasons for the under expenditure were vacancies in the branch and delays in the finalisation of projects such as the 20 year Liquid Fuels Map and Data Collection for Energy Planning. Furthermore, it was reported that the implementation of Cost Containment Measures for items such as venues and facilities, travel and subsistence, and advertising also contributed to the reported under spending.

 

3.1.2    Remedial Actions Implemented for under expenditure

 

The Department reported that six Finance Committee meetings are being held per annum to discuss overall slow expenditure per branch as well as the monitoring of spending against the Procurement Plan. BAC meetings as well as six additional ad-hoc BAC meetings were held to accommodate requests and to accelerate expenditure. The procurement process for the 2015/16 financial year commenced in September 2014 to appoint service providers before the commencement of the 2015/16 financial year and a robust SWH implementation model has been developed by the Department to deal with the expenditure challenges in that regard.

 

The Department also reported on the principles of efficiency, effectiveness and economy with specific reference to the Cost Containment Measures and the use of consultants. The Department further reported that it was chosen as one of the best performing national departments with regard to the 30 day payment of invoices. In terms of non-financial performance, the Department reported that out of 33 targets for the period under review, 7 were achieved, 11 partially achieved and 15 were not achieved.

 

3.1.3    Committee Deliberations with the Department

 

The Committee commended the Department in its successful efforts regarding the payment of service providers within 30 days of the receipt of invoices. Furthermore, the Committee lauded the Department for commencing with its Supply Chain Management processes for the Integrated National Electrification Programme (INEP) Non-Grid in September 2014 in order for service providers to be appointed by 31 March 2015. Notwithstanding these positives, the Committee raised concerns around a number of issues related to the Department’s expenditure and non-financial performance.

 

Reference was made by the Committee to the reported delays in implementation of projects which werecited as the main reason for under expenditure during the period under review and clarity was sought on how these related challenges would be addressed. Furthermore, concern was expressed at the reported vacancy rate which led to under expenditure of R21.3 million under the Compensation of Employees item. The Committee was of the view that the delays in the implementation of projects would result in future cost escalations and to this end enquired on how the Department’s budget would be affected as a result.

 

The Committee expressed concerns at the slow expenditure performance of Programme 6, Clean Energy, wherein only 35.94 per cent has been spent. The point was made that Clean Energy initiatives had been identified by Government as an additional policy lever in stimulating job creation. The Committee gauged the reasons for the delays in the implementation of the Solar Water Heating (SWH) programme by Eskom and the subsequent cancellation of the contract with the entity. Clarity was sought on the date of the cancellation and the envisaged resumption of the SWH programme.  The Department submitted that it will begin the rollout of the SWH internally and align performance targets accordingly in its Annual Performance Plan.

 

The Committee made reference to programme 4, Electrification and Energy Programme Management, and expressed concern around the slow expenditure of the Integrated National Electrification Programme (INEP)grant transfer to municipalities and provinces. The Committee’s primary concern was the withholding of funds from municipalities due to reported non-compliancewith the Division of Revenue Act requirements. The Committee gauged the reasons for the withholding of funds and sought clarity on the affected municipalities as well as the respective amounts of funding withheld.

 

The Committee views sustainable energy as the primary driver of economic activity in South Africa and as such delays in the completion of energy related projects in the current environment of challenges facing the energy sector is not acceptable and detrimental to economic growth. Following further deliberations and questions on its spending capacity, the Department assured the Committee that it would be able to spend its allocation for the 2015/16 financial year as well as requested roll-over funds.

 

3.2       Department of Science & Technology (Vote 34)

 

The Department of Science & Technology (the Department) was allocated an amount of R6.5 billion for the 2014/15 financial year after adjustment of which R4.69 billion or
72.4 per cent had been spent by the end of the third quarter. The Department projected to spend R5.92 billion for the period under review resulting in under expenditure of R1.22 billion.

 

In terms of Economic Classification, Compensation of Employees was allocated a budget of R284.9 million of which R206.9 million or 72.6 per cent had been spent by the end of the third quarter. Good & Services were allocated R181.8 million and reflected expenditure of R121.7 million or 67.0 per cent for the period under review. Transfer & Subsidies showed spending of R4.36 billion or 72.5 per cent of a budget of R6.01 billion, and Payment of Capital Assets reflected expenditure of R5.4 million or 191.1 per cent of a budget of R2.8 million. The reported under expenditure under Compensation of Employees is attributed to vacant positions, and that under Goods & Servicesis mainly as a result of the reprioritisation of the public participation programme to the 2015/16 financial year due to change in political leadership.

 

3.2.1    Expenditure per programme

 

The Department’s budget comprises of five programmes, i.e. Administration; Technology Innovation; International Cooperation & Resources; Research, Development & Support; and Socio-Economic Innovation Partnerships. The Programmes that showed under expenditure are discussed in detail hereunder:

 

Technology Innovation: Programme 2 reflected expenditure of R745.65 million in comparison to planned expenditure of R976.84 million resulting in a deviation of R231.19 million. The reported reason for the deviation is poor performance by the Technology Innovation Agency which also underspent in the 2013/14 financial year thus resulting in the withholding of a parliamentary grant of R126 million. Other reasons for the deviation include delays in transferring funds for completed projects to allow for a verification process and delays in the finalisation of contracts.

 

International Cooperation & Resources: Programme 3 showed expenditure of
R70.85 million versus planned expenditure of R98.70 million resulting in a deviation of R27. 85 million due to participation in the European Union calls which took place later than anticipated.

 

Research, Development & Support: Programme 4 reflected expenditure of
R2.56 billion out of planned expenditure of R3.27 billion resulting in a deviation of R712.24 million as a result of delays in finalising contracts with implementing agencies.

 

Socio-Economic Innovation Partnerships: Programme 5 reflected expenditure of R1.11 billion out of planned expenditure of R1.34 billion resulting in a deviation of R231.48 million due to delays in implementation in order to enhance the Advanced Manufacturing Technology Strategy as well as incorporate new strategic priorities.

 

3.2.2    Remedial Actions Implemented for under expenditure

 

The Department reported the following remedial actions to address challenges related to spending in the 2014/15 financial year:

 

 

• Enhanced planning by ensuring alignment between projections, internal processes (contract signing and monitoring) leading up to payment.
• Improved internal processes by reviewing and enhancing contractual engagements.
• Reprioritisation before adjustment estimates period to accommodate change in plans.
• Establishment of a Chief Financial Officer forum between entities and the Department to improve expenditure monitoring.
• Introduction of a multi-year funding transfer or longer term contracts to increase efficiency and effectiveness on the approval process of contracts.

 

3.2.3 Deliberations with the Department

 

The Committee sought clarity on whether the Department had taken the necessary remedial steps in addressing audit findings emanating from the previous financial year as well as preventing irregular and fruitless expenditure. The Department indicated that an action plan for enhancing internal control was developed and is being implemented including a checklist for detecting risks that could possibly lead to repetition in audit findings.

 

The Committee was concernedwith the Department’s submission that they would need to retain consultants to supplement internal capacity.  The Department indicated that due to the restructuring of programmes, more funds were needed for Compensation of Employees and that a request for virements from Transfers to Compensation of Employees was denied by National Treasury implying that the Department would have to utilise contract workers to supplement their internal capacity. The Department further reported that contract workers were classified under Consultants according to the Standard Chart of Accounts.

 

The Committee expressed a concern regarding the poor spending performance of the Technology Innovation Agency and requested the Department to outline corrective steps taken to address the expenditure management of the agency as well as indicate what will happen to the funds withheld from the Agency. The Department reported that there were management challenges in the agency which are currently being addressed subsequent to the appointment of a new board and formulation of a new strategic direction.  The Department also cited that a forensic audit was conducted in the agency and financial mismanagement was detected and that the necessary legal processes were being effected. The Department indicated that there should be improvement in performance in the 2015/16 financial year.

 

 

The Department was requested to indicate the measures it has in place to enhance monitoring in order to ensure value for money in services delivered. The Department reported that it has developed a framework with a set of indicators which take into account the economic value and returns derived through the Department’s programmes as well as government savings resulting from the Department’s innovations. The Department was prepared to brief the Committee on this framework.

 

The Committee had a number of clarity seeking questions around the Department’s performance targets and was of the view that the Department should refine their reporting on targets and eliminate ambiguity in terminology.

 

The Committee was concerned about possible overspending in Compensation for Employees and Payments of Capital Assets by the end of the 2014/15 financial year. The Department indicated that a slight underspending was forecasted for Compensation of Employees whilst Payments of Capital Assets were under budgeted for and a virement shift would be done to rectify this.

 

3.3 Department of Health (Vote 16)

 

The Department of Health (the Department) was allocated an amount of R33.9 billion for the 2014/15 financial year after adjustments. At the end of the third quarter of the 2014/15 financial year, the Department had spent R24.9 billion or 73.4 per cent. An amount of R31.2 billion of the Department’s total budget of R33.9 billion accounted for Transfers and Subsidies. In terms of the originally scheduled drawings, the Department was supposed to spend R25.5 billion therefore recording a lag in expenditure of R591.9 million at the end of the period under review. 

 

In terms of Economic Classification, Compensation of Employees was allocated an adjusted budget of R604.6 million of which R453.6 million or 75.03 per cent had been spent by the end of the first quarter. Goods& Services was allocated R1.6 billion and reflected an expenditure of R676.7 million or 42.06 per cent at the end of the period under review. Transfers& Subsidies was allocated an adjusted budget of R31.2 billion from which R23.6 billion or 75.8 per cent has been spent, while Payments for Capital Assets reflected an expenditure of R142.4 million or 29.1 per cent of an adjusted budget of R489.0 million.

 

The reported main reasons for the slow expenditure under the Goods and Services economic classification were as follows:

 

• Very slow uptake of General Practitioners for the National Health Insurance (NHI) pilot sites;
• Delays in the finalisation of the Service Level Agreements for the maintenance programme under the Health Facilities Revitalization Grant; and
• Doses for the Human Papilloma Virus Vaccinations are administered during September to October and February to March and vaccines amounting to R71 million to be procured during the fourth quarter for the latter.

 

The Department reported the following reasons for the lag in expenditure under the Payments for Capital Assets economic classification:

 

• Delays in the procurement of six servers for the Information Technology Unit;
• Delays in the procurement of industrial fridges amounting to R10.5 million for the Human Papilloma Virus Vaccines in provinces;
• Slow expenditure under the Health Facilities Revitalization Grant;
• Specialist laboratory equipment ordered but delivery is only expected in the fourth quarter.

 

3.3.1    Expenditure per programme

 

The Department’s budget comprised of six programmes, i.e. Administration; National Health Insurance, Health Planning and Systems Enablement; HIV and AIDS, Tuberculosis, Maternal and Child Health; Primary Health Care Services; Hospitals, Tertiary Health Services and Human Resource Development; and Health Regulation and Compliance Management. Table 4 below provides the expenditure per programme for the Department by the end of the third quarter of the 2014/15 financial year.

 

Table 4:Department of Health expenditure per programme – 31 December 2014

Sub programme	Adjusted budget	Actual expenditure	Funds available	Percentage spent
	R0’00	R0’00	R0’00
Administration	399,721	302, 591	97,130	75.70%
National Health Insurance, Health Planning and System Enablement	682,156	211,886	416,270	33.73%
HIV & AIDS, TB, Maternal and Child Health	13,049,923	10,084,379	2,965,544	77.28%
Primary Healthcare Services	111,345	76,048	35,297	68.30%
Hospitals, Tertiary Health Service & HR Development	18,810,607	13,621,600	5,189,007	72.41%
Health Regulation & Compliance Management	900, 818	609,890	290,928	67.70%
Total	33,900,570	24,906,394	8,994,176	73.47%

Source: Department of Health (2014)

 

The programmewhich has considerably underperformed as at the end of the period under review will be discussed in more detail hereunder.

 

National Health Insurance, Health Planning and System Enablement: Programme 2 received an adjusted budget allocation of R628.1 million for the 2014/15 financial year. At the end of the period under review an expenditure of R211.8 million or 33.7 per cent was spent. The reasons for the under expenditure in Programme 2 was mainly due to the following:

• Slow expenditure under the National Health Insurance indirect grant where the uptake of Health Practitioners was very slow. Only 190general Practitioners (GPs) have been contracted from a targeted 900 at the end of the third quarter mainly due to uncompetitive conditions of service.
• Delays in the finalisation of the South African Demographic Health Survey.

 

The Department reported on its non-financial performance by the end of the third quarter of the 2014/15 financial year. The Department further reported on its indirect grants performance as at the end of the period under review and provided reasons for the variances in expenditure. The table hereunder provides an overview of the Departments’ indirect grant performance by the end of December 2014.

 

 

 

 

 

 

 

 

Table 5: Schedule 6A (Indirect) Grant Performance Report

Grant	2014/15 Adjusted Budget (R’ million)	Total Expenditure	Commitments	Budget Available	% Spent of  Budget
Health Facility Revitalisation Grant	604, 862	194, 862	52, 132	357, 868	32%
Human Papillomavirus Vaccine	200,000	40,930	60, 069	99, 001	20%
National Health Insurance	388, 044	35, 213	334, 267	18, 564	9%
Total	1 192 906	271 006	446 468	475 432	23%

Source: Department of Health (2014)

 

3.3.2 Deliberations with the Department

 

The Committee made reference to the current poor state of various hospitals in South

Africa and sought clarity on how this would be addressed. Furthermore, the Committee expressed concern at the challenges relating to the contracting of General Practitioners (GPs) during the NHI pilot phase which has led to significant under expenditure in the indirect grant.

 

The Department submitted that permanent inspectors have been employed through the Office of Health Standards Compliance to continuously assess the conditions in hospitals. Furthermore, the Department stated that the system of appointing suitable Chief Executive Officers (CEOs) was in the process of being reviewed so as to ensure that people with adequate health backgrounds were appointed, coupled with delegated powers to CEOs to give them a level of semi-autonomy in hospitals. This will seek to address the challenges around the continued delays by the Department of Public Works in addressing hospital maintenance requests sent to them. In addition, the use of different Information Technology Systems by provinces made the monitoring processes by the national department difficult.

 

The Department also submitted that while there were 400 000 people collecting medicines from clinics in South Africa a decade ago, the number now was three million and this was largely due to HIV/AIDS and its associated ailments. Therefore the Department was working on having an integrated health care personnel system, wherein a nurse/doctor could deal with AIDS, diabetes, antenatal care and other conditions simultaneously.

 

With regards to the challenges in the NHI pilot sites, the Department indicated that General Practitioners (GPs) still need to be encouraged to go work at clinics, rather than hospitals. The Department reported that it is continuously learning from the pilot programme.

 

The Committee commended the Department regarding the reported R1.6 billion (R312.74 million at the end of December 2014) in revenue which has been collected in hospitals over the past three financial years and sought clarity on what the total amount in revenue to be collected was. The Department reported that 400 unemployed graduates in the fields of Information Technology, Human Resources, and Finance were used and that a request will be made to National Treasury, in consultation with the Financial, and Fiscal Commission for a portion of the collected amount, only in instances where collection was above the set collection target, to be kept by those hospitals in order to address outstanding maintenance issues.

With regards to maternity health, the Department indicated that many women waited until they were in labour before they went to clinics. This was a significant challenge to the health system, asmothers needed to be encouraged to attend antenatal clinic becausethosemothers who areinfected need to receive HIV treatment by the 14th week of pregnancy. The Department has created an SMS system to contact mothers once they had registered at clinics. Another concern raised by the Department was the fact that only 8 per cent of mothers breastfed their children and this was one of the lowest rates in the world.

The Committee expressed concern at the recurring under expenditure in Payments for Capital Assets item and the lack of maintenance of health infrastructure. Clarity was sought on how these issues would be addressed. The Department responded that it has commenced with a cycle for planning regarding infrastructure delivery for health facilities with the hope to improving expenditure.

 

4.         Findings

 

The Standing Committee on Appropriations, having deliberated with the invited departments on the third quarter expenditure patterns for the 2014/15 financial year, made the following findings:

 

Overall Spending Performance as at end of Third Quarter 2014/15

 

4.1       At the end of thethird quarter of the 2014/15 financial year, national departments have spent and transferred 72.6 per cent or R462.1 billion, whilst having originally scheduled drawings of R480.2 billion leaving a lag of R18.0 billion at this point in the year.

 

4.2       The Committee notes that the largest lags in spending by the end of the third quarter is R2.8 billion under the Department of Water and Sanitation and R2.8 billion under the Department of Cooperative Governance and Traditional Affairs. There were also significant lags in expenditure in the Departments of Energy, Science and Technology, Justice and Constitutional Development, and Trade and Industry.

 

4.3       The Committee notes that the Department of Home Affairs, Environmental Affairs, Public Enterprises, Government Communication and Information System, and Sport and Recreation South Africa have also spent or transferred slightly more than the originally scheduled drawings during the first three quarters.

 

Spending effectiveness and performance issues with sector departments

 

 

4.4       The Committee notes that the Department of Energy, in mitigating past under expenditure commenced with its Supply Chain Management processes for the Integrated National Electrification Programme (INEP) Non-Grid in September 2014 in order for service providers to be appointed by 31 March 2015.

 

4.5       The Committee welcomes the Department of Energy’s report that it had paid 100 per cent of 318 invoices to service providers within 30 days during the second and third quarters of the 2014/15 financial year.

 

4.6       The Committee notes with concern that the Department of Energy had 847 approved posts of which 114 were vacant as at the end of the third quarter of the 2014/15 financial year. Furthermore, the Department reported that it had 204 unfunded core vacant positions.

 

 

4.7       The Committee notes that the Department of Energy withheld the transfer payment of R336.4 million to Eskom for delays in the implementation of the Solar Water Heating (SWH) programme. Furthermore, the Department terminated the implementation agreement with the entity and willintroduce an in-house robust implementation plan for the programme. The under expenditure in this programme has significantly impacted on the Department’s overall expenditure for 2014/15 as it accounted for 22 per cent of the total budget of R7.44 billion.

 

4.8       The Committee notes that the Department of Science & Technology withheld a transfer of R126 million from the Technology Innovation Agency (TIA) and also notes with concern the persisting underperformance and related challengesin the TIA which resulted in the withholding of funds. The Committee welcomes the interventions highlighted by the Department of Science & Technology to address these challenges and urges the Department to support the agency in implementing corrective actions so that there’s improvement in performance in the 2015/16 financial year.

 

4.9       The Committee notes that the Department of Science & Technology has developed a framework with a set of indicators which take into account the economic value and returns derived through the Department’s programmes as well as government savings resulting from the Department’s innovations. The Committee will be engaging further with the Department on this in order to gauge best practices for measures that departments can put in place to ensure value for money in services delivered.

 

4.10     The Committee notes with concern the Department of Science & Technology’s intention to retain consultants to supplement internal capacity. The Committee further notes that additional capacity is required as a result of the restructuring of the programmes and that the Department’s request for additional funds in this regard was denied by National Treasury.

 

4.11     The Committee commends the Department of Health’s efforts to collect an amount ofR312.74 million at the end of December 2014 and R1.6 billion over the past three financial years in outstanding revenue through the use of 400 unemployed graduates.

 

4.12     The Committee found that the Department of Health has recorded significant under expenditure for Payments of Capital Assets where only R142.4 million or 29.1 per cent has been spent from the adjusted allocation of R489.0 million. In response to the recurring under expenditure on capital projects which were implemented by service providers, the Department has commenced with its own in-house cycle of planning regarding infrastructure delivery for health facilities.

 

4.13     The Department of Water and Sanitation had spent 85% of its vote as at 31 March 2015. The slow expenditure performance was dueto delays in the processing of invoices. The Department was in the process of verifying projects that were done by implementing agents. In addition the sanitation function was transferred to DWS in October 2014 and most vacancies could not be filled due to moratorium issued by the Minister.

 

4.14     The Committee notes and welcomes efforts by the Auditor General of South Africa in assisting departments to attain clean audits through value adding initiatives such as Quarterly Key Control processes. The Committee views enhanced partnerships on spending issues with the Auditor General of South Africa as critical in ensuring the objectives of state budgets doing more with less.

 

5.         Recommendations

 

The Standing Committee on Appropriations having engaged with theinviteddepartments on the third quarter expenditure report for the 2014/15 financial year, recommends as follows:

 

1. That the Minister of Finance should ensure that the National Treasury in partnership with the Department of Performance Monitoring and Evaluation enhance systems and measures that monitor and ensure that all state agencies pay suppliers within 30 days as per legislation requirements and the state’s economic transformation imperative.

 

 

1. That the Minister of Health should ensure the following:

 

1. That the Department of Health in partnership with the National Treasury  with the Department of Performance Monitoring and Evaluation, Financial and Fiscal Commission consider a review and enhancement of the efficacy and effectiveness of the conditional grant frameworks of the Health sector in ensuring accelerated delivery of quality health services to all.

 

1. That the Department of Health in partnership with the Department of Performance Monitoring and Evaluation and State Information Technology Agency develop and enhance systems that monitors and systematically tracks all aspects of performance in each health facility in the country.

 

1. That the Department of Health in partnership with the Department in the Presidency for Planning, Monitoring and Evaluation explore, evaluate and implement mechanisms in which the responsibility of maintaining hospitals and other health infrastructure can been devolved to the Department of Health and other capable state agencies.

 

 

1. That the Minister of Water and Sanitation should ensure that the Department of Water and Sanitation in consultation with Department of Public Service and Administration, Department of Labour and the Department of Higher Education consider developing coordinated systems and mechanisms for the recruitment and development of technical professionals appropriate for the effective rollout of water services infrastructure programmes

 

 

1. That the Minister of Science and Technology should ensure the following:

 

1. That the Department of Science and Technology in partnership with the Department of Public Services and Administration speedily review its organisational structure and implement the necessary changes and align its service delivery model so as to minimise the use of consultants and build internal capacity.

 

1. That the Department of Science and Technology in partnership with National Treasury and the Department of Performance Monitoring and Evaluation should implement systems to significantly improve the operational performance of the Technology Innovation Agency and address audit findings raised by the Auditor General of South Africa.

 

 

6.         Conclusion

 

The responses to the recommendations as set out in section 5 above by the relevant Executive Authorities must be sent to Parliament within 60 days of the adoption of this report by the National Assembly.

 

 

 

Report to be considered.