Presentation of the Fourth Quarter Expenditure Analysis 2011/12

Presentation of the Fourth Quarter Expenditure Analysis 2011/12

Presented By: Phelelani Dlomo and Musa Zamisa

14 August 2012

Research Unit

BACKGROUND

1. IntroductionThis analysis provides a detailed overview of fourth quarter government

spending for the past 3 years 2009, 2010 and 2011.• To highlight and flag out spending pattern of the national departments.• To draw the attention of Parliament and Executive to the key issues • To improve public spending patterns and compliance.

2. The Establishment of the CommitteeThe standing committee on Appropriation (SCOA) was established in

terms of section 4(3) of the Money Bill Act No.9 of 2009. 2.1 The Act requires the Committee to:• Consider and report on the spending issues• National Treasury to publish actual expenditure (in terms of section 32

reports)

3. The Review of Overall Allocations and Expenditure The overall allocation amounted to R510.9 billion excluding the direct

charge of R388.8 billion.• R146.4 billion (28.6 per cent) for current payments• R349.4 billion (68.4 per cent) for transfers and subsidies• R13.9 billion (2.5 per cent) for capital payment (CAPEX)

REVIEW OF OVERALL BUDGET AND EXPENDITURE 2009-2011

Figure1- below shows an increase in the budget allocation meanwhile there is a decrease on the fourth quarter expenditure trends for the past three financial years (i.e. from 2009 – 2011). The R499.5 billion was spent against R510.9 billion. Figure : 1

OVERALL UNDER EXPENDITURE TRENDS 2009-2011

Figure 2 - below examines the under expenditure patterns on the overall expenditure for the past three financial years. This shows an increasing under expenditure i.e. from R6.3 billion in 2009/10, R9.5 billion in 2010/11 and R11.4 billion in 2011/12. Figure: 2

DEPARTMENTS CONTRIBUTED TOWARD UNDER EXPENDITURE

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Figure 3 below depicts the 7 departments which have reported major under expenditures. Figure 3: Major contributors to under expenditure for 2011

EXPENDITURE ON ECONOMIC CLASSIFICATIONS FOR 2011/12

In terms of economic classifications major under expenditure has been identified in the following areas:

• Goods and services were allocated R52.6 billion and spent R49.9 billion or 95 per cent.

• Payments for Capital Assets were allocated R13.9 billion and spent R11.7 billion or 85 per cent.

• Transfers and Subsidies were allocated R349.4 billion and spent R343.2 billion or 98 per cent.

It is important to note that transfers are normally spent by receiving entities and therefore are accountant for in their respective accountability structures.

The Department was allocated R9.0 billion for 2011/12

The Department spent R8.2 billion or 91.3 per cent

The under expenditure amounts to R784 million or 8.7 per cent

DEPARTMENT OF WATER AFFAIRS

Figure 4: Overall Allocation and Expenditure for 2007-2011

REASONS FOR UNDER EXPENDITURE 2011/12Under expenditure has been identified in the following areas:Compensation of employees was allocated R1.1 billion and spent R922.8 million. This means that there is under expenditure of R133.7 million due to:•None filling of vacant posts

Goods and Services were allocated R1.5 billion and spent R1.6 billion or 102.4 per cent. it is interesting to note that the budget for goods and services has been totally exhausted meanwhile, there is:

•Slow spending on Acid Mine Drainage project budgeted under G&S.•None procurement of video conferencing and other office furniturePayments for Capital Assets were allocated R2.8 billion and spent R2.2 billion or 78.2 per cent.

The under expenditure of R622 million or 21.6 per cent was due to the:•Delays in the payments of Nandoni, Hluhluwe and Inyaka Dam•Delays in the appointment of implementing agencies•Delays in the finalisation of memorandum of agreements

• Only 91% was achieved against 98% for Inyaka Water Treatment.

• Only 58% was achieved against 79% for Nandoni Water distribution

• Only 20% was achieved against 27% for the construction of Nandoni pipe

• Only 5 bulk infrastructure schemes were achieved against 7 schemes

• And 93% was achieved against 92 % for Hluhluwe water services project.

• It is interesting note that as much as the Department has spent more than 90 per cent of its budgets but there are still some projects which are not yet finalised as planned in the beginning of the year.

SOME PERFORMANCE INFORMATION ON WATER

The Department of Public Works was allocated R7.8 billion and spent R7.0 billion or 90.1 per cent. The reported under expenditure amounts R768 million or 9.8 per cent.

Figure 5: Overall Expenditure Trends 2007-2011

DEPARTMENT OF PUBLIC WORKS

The under expenditure in the Department was identified in the following:

Transfers and subsidies were allocated R4.0 billion and spent R3.6 billion or 91.1 per cent. this was due to the:

• Lack of spending on Energy Efficient project in government buildings

• Lack of spending on Expanded Public Works Incentive Grant for local government

• Lack of spending on Expanded Public Works Incentive Grant for provincial government particularly for infrastructure.

• Failure by municipalities and provinces to meet quarterly performance targets and inability to design labour intensive programmes.

• Slow spending on Common Wealth War Graves.

The lack of expenditure is a cause for concern since these funds were earmarked to create more labour intensive jobs.

Capital Payments were allocated R1.5 billion for and spent R1.0 billion or 71.9 per cent. under expenditure on CAPEX was due to the:

• None implementation of infrastructure projects as result lack of technical expertise.

REASONS FOR UNDEREXPENDITURE 2011/12

DEPARTMENT OF WOMEN AND CHILDREN & PEOPLE WITH DISABILITIES

The Department was allocated R143.1 million and spent R165.8 million or 115.8 per cent

This is the only department that has recorded over expenditure of R23 million or 15.8 per cent more than its budget.

Figure 6 : Overall Expenditure Trends for 2007-2011

REASONS FOR OVERSPENDING ON WOMEN AND CHILD

The over expenditure has been identified in the following areas:

• Compensation of employees was allocated R34.7 million and have spent R47.8 million or 137.6 per cent. The Department has spent R13 million or 37.6 per cent more than its budget on compensation of employees due to the:

• Appointment of staff outside the available budget

• Some employees are paid in higher notches than the DPSA requirement

• The establishment of the Research Unit which was not budgeted for.

It is important to note that though the Department has over spent its budget on personnel but the Department still has a number of vacant positions.

• Goods and Services were allocated R46.0 million and have spent R55.4 million or 120.4 per cent. this was due to the

• Travelling and subsistence allowance costs

At the end of the fourth quarter, the Department has reported under performance in the following programmes.

•

• The none completion of gender mainstreaming strategy as was projected

• The none implementation of Monitoring and Evaluation Systems

• The none implementation of Gender Barometer for Job Creation Fund...

• The planned gender audit was also not undertaken in four provinces.

• The report on capacity building was not submitted to Cabinet as planned

• Adults Basic Education Training programmes (ABET) in all nine provinces were not facilitated as planned.

• Training programmes on skills development for women in Construction Cooperatives, Waste management, and Farming were not fully implemented as planned the beginning of the year.

It is interesting to that the Department has exhausted its entire budget even more yet some targets are not yet achieved. The Department needs to come up with a turn around plan to make sure that such things do not happen in this financial year.

SOME PERFORMANCE INFORMATION

For 2011/12, the Department was allocated R104.2 billion and have spent R103.1 billion or 98.9 per cent. The Department has reported an under expenditure of R1.1 billion or 1.1 per cent. of note is that this department receives the largest portion of the national budget because of social grants.

Figure 7: Expenditure Trends for 2007-2011

DEPARTMENT OF SOCIAL DEVELOPMENT

REASONS FOR UNDERSPENDING 2011/12

Under expenditure has been identified in the following areas of economic classifications:

Compensation of employees were allocated R276.6 million and have spent R273.5 million or 98.8 per cent. this under expenditure was due to the:

• None filling of vacant positions• The appointment of contractors as opposed to the permanent staff yielded some

savings. ( what are the implication of contract workers in the spirit of decent job creation?)

Goods and Service were allocated R257.7 million and have spent R249.8 million or 96.9 per cent. the under spending on goods and services was due to the:

• late submission of invoices from the service providers. • Invoices from SITA and other service providers were also not received on time.

Transfers and Subsidies were allocated R103.7 billion and have spent R102.5 billion or 98.9 per cent. The reported under expenditure was due to the:

•Transfer payments for Disability Grant were not 100 percent done.•Transfer payments for Forster Care Grant were not 100 per cent done•Transfers payments for Child Support Grant were not 100 per cent done•Transfer payments for Social Relief Assistance were not 100 per cent transferred•Transfer payments to Non Governmental Organisation (Love life) could not take place due to non compliance with minimum standard.

DEPARTEMNT OF POLICE

• For 2011/12, the Department of Police was allocated R58.5 billion and have spent R57.9 billion or 98.9 per cent. The Department has reported an under expenditure of R617 million or 1.5 per cent

Figure 8: Expenditure Trends from 2007-2011

The under expenditure was identified in following areas of economic classifications:

Goods and services were allocated R12.7 billion and have only spent R11.9 billion or 93.8 per cent. The underexpenditure on goods and services was a result of:

• Under spending in the Technology Management Service due to slow

implementation of modernisation projects• Delays in the completion of new police stations• Delays in the procurement process of machinery and equipment• Slow spending on Criminal Justice Sector Revamp projects •

The Department has only spent 71.5 per cent of R66.9 million which was earmarked for building of police stations. The under expenditure in this allocation was due to:

• Delays in awarding contracts or tenders to contractors• Delays of the site clearance

REASONS FOR UNDERSPENDING 2011/12

Though the Department of Police have reported overall under expenditure for 2011/12, some over expenditures in certain programmes and sub programmes have been reported.

• 110.5 per cent spent on Safety and Security Sector Education and Training Authority.

• 172.4 per cent spent on claims against the State or Civil claims instituted against the Department for possible compensation.

• 4 343.3 per cent spent on the Integrated Justice System Programme

• 316.1 per cent also spent on the modernisation of Integrated Justice System

• 193.8 per cent for post retirement benefit

This is an indicative of the lack of proper planning and accurate projections, so although the Department has spent up to 99 per cent of its budget but most of the expenditure was not in line with the initial projections.

OVERSPENDING IN SOME PROGRAMMES

• The President in the beginning of 2011 made an undertaking that all departments should fill

their funded vacancies before the end of the first quarter of 2011/12. To date it is still clear that part of the main reasons for under expenditure across government department was none filling of funded vacant posts.

• • It is also important to note that more often than not the expenditure of the CAPEX budget is

mainly dependent on the filling of funded vacancies. Therefore there is a positive relationship between the CPEX budget and the budget for vacant positions.

• • The delays in the procurement processes and non compliant with minimum requirements for

conditional grants such as EPWP Incentive Grant and other transfer payments remained a challenge.

• • Section 13 of the Treasury Regulations provides that all government departments must pay

their credits and any money owed within 30 days of the month. It is therefore; quite worrying to note that part of the reasons for under expenditure was the non payment of invoices which were not submitted either by service providers or Department of Public Works and SITA.

• • The Department of Women and Children is still faced with the increasing expenditure on

compensation of employees and goods and services due to travelling and subsistence allowances but the Department was unable to finalise its planned targets for 2011/12.

ISSUES FOR COMMITTEE CONSIDERATIONS

• The Department of Social Development has not been able to make the complete transfer payments for the following social grants namely, Disability Grant, Forster Care Grant, Child Support Grant and Social Relief Assistant.

• The Department of Police has reported under expenditure for the first time this year and certain expenditures are not in line with projected budgets. The delays in the awarding of contracts for building of Police Stations have been noted as a contributing factor for under spending.

• Parliament should ensure that it spend reasonable time to scrutinize Strategic plans and Annual Performance plans (APP) of various departments in order to ascertain whether indeed the department have enough capacity to achieve its targets and whether those targets are realistic or not.

ISSUES FOR COMMITTEE CONSIDERATIONS

DEPARTMENT OF COMMUNICATIONS

COMMUNICATIONS

• Not only successive under spending, but it has been showing regression.

• In 2011/12 remained below 90 percent, hence R210.9 million was left unspent.

• Despite the 100 percent transfer of funds, spending remained low in other economic classifications:

R21.9 million (against R173.5 million) unspent on Compensation of Employees;

R187.8 million (against R413.3 million) unspent on goods and services;

R1.7 million (against R4.6 million) unspent on payment on capital

assets.

COMMUNICATIONS

• The 100 percent transfer of funds does not equate to 100 percent actual spending.

• In the end of the 3rd quarter only 48.4 percent had been transferred and suddenly 100 percent is transferred in the end of the 4th quarter.

• These are clear signs of fiscal dumping through late transfers since receiving entities would never have managed to spend such late transfers.

• The 100 percent transfer conceals 0 percent transfer against R3.5 million to the Nepad E-Africa Commission.

COMMUNICATIONS

• Major Reasons for under spending

• Moratorium on the appointment of staff in Programme 1, hence under spending on compensation of employees and goods and services.

The Committee may want to know the rationale, and duration of the reported Moratorium on the appointment of staff.

• Delays in the implementation of the 112 Call Centre Project. This is a recurring issues.

A number of job and entrepreneurial opportunities are blocked as a result of the delays.

Delays in the implementation of the broadband ICT projects.

This is another recurring issue which seem to have no closure.

The Department must shed some light on this issue.

Reasons for under expenditure

NATIONAL TREASURY

NATIONAL TREASURY

• has regressed heavily over the past 5 years dipping to a low 89.6 percent (R21.4 billion against an available budget of R23.8 billion), hence an under spending of R2.5 billion in 2011/12.

• Under spending is experienced in all economic classification except for Payments for financial Assets:

R63.7 million (against R6 million) unspent on compensation of employees

R165 million (against R899.1 million) unspent on goods and services.

R11.6 million (against R20.6 million) unspent on payment for capital assets

R2.2 million (against R21.6 billion) unspent on transfers and subsidies

MAJOR REASONS FOR UNDER SPENDING

• In the Technical Support and Development Finance (Programme 8) only 61.7 percent was spent (i.e. R2.9 billion against an available budget of R4.6 billion), hence a budget of R2 billion left unspent.

Three are numerous job creation initiatives in which low expenditure was experienced, and these include:

• R1.8 billion left unspent/transferred against a budget of R2 billion on the Employment Creation Facilitation Fund. The under spending is due to delays in the planning phase of the Jobs Fund.

Does DBSA have the requisite capacity to administer the implementation of the Jobs Fund. Particularly given the slow delivery of the ASIDI project implemented by it?.


• R103.6 million left unspent/transferred against a budget of R750 million on the Neighbourhood Development Partnership Grant (NDP). This is said to be due to certain municipalities’ inability to meet projected milestones.

The Committee may want to know which and from which provinces are these municipalities.

• R103.6 million left unspent/transferred against a budget of R750 million on the Neighbourhood Development Partnership Grant (NDP). This is said to be due to certain municipalities’ inability to meet projected milestones. The Committee may want to know which and from

which provinces are these municipalities.


• 122 vacant positions (for specialised skills) mainly due to the Department’s inability to attract suitable skills.

This basically signals capacity challenges in the National Treasury which is a cause for concern given its role as the custodian of public finances. The Committee may want to know the extent to which these capacity challenges impact on its mandate especially that relates to providing technical support to struggling municipalities.

BASIC EDUCATION

BASIC EDUCATION

• 91.4 percent (i.e.R12.9 billion against an available budget of R14.1 billion) in 2011/12 in which a R1.2 billion budget was left unspent.

• Except for 100 percent in transfers and subsidies, all economic

classification under spent:

R21.3 million (against 316.8 million) unspent on compensation of employees

R152.3 million (against R1.8 billion) unspent on transfers and subsidies

R643.5 million (against R11.2 billion) unspent on capital payments

BASIC EDUCATION

• MAJOR REASONS FOR UNDER SPENDING• Mainly in Programme 4 (Planning, Information and Assessment) • which only R.5.5 billion was spent against an available budget of

R6.6 billion, hence a budget of R1 billion left unspent. • Due to:

R640.3 million unspent on the R700 million budgeted for the School Infrastructure Backlog Grant mainly for the building of 49 schools in the Eastern Cape Province.

R367.2 million on the Education Infrastructure Grant not transferred to the Eastern Cape Education Department due to slow performance.

• What is the actual performance on the Education Infrastructure Grant that that was successfully transferred to other provinces other than the Eastern Cape Province.

Reasons for under expenditure

Other reason :

• Programme 2 (Curriculum Policy, Support and Monitoring) only R1.7 billion or 94.6 percent was spent against an available

budget of R1.8 billion), hence R96.4 million left unspent• Due to:

R50 million under spending on the Kha Ri Gude project due delays in the procurement of textbooks.

• The issue of delays in the procurement and delivery of textbooks remains a huge challenge in light of the TTT declared in the President’s State of the Nation Address.

R2.1 million withheld from the Limpopo Provincial Education Department because of slow spending on the Dinaledi Schools Grant

The Committee may also want to know the actual performance on the Dinaledi Schools Grant that was successfully transferred to other provinces other than the Eastern Cape Province.

BASIC EDUCATION

COOPERATIVE GOVERNANCE AND TRADITIONAL AFFAIRS

• Regressed heavily to 96 percent (.i.e. R46.2 billion against an available budget of R48.2 billion), hence an unspent budget of R1.9 billion in 2011/12.

• Except for payment for financial assets, under spending was experienced in all Economic Classifications:

R13.8 million (against R248.8 million) left unspent on compensation of employees

R101.8 million (R478.6 million) left unspent on goods and services

R1.9 billion (against R47.6 million) left unspent on transfers and subsidies

R11.4 million left unspent on payment for capital assets.


MAJOR REASONS FOR NDER SPENDING

• R735.6 million (against R816.2 million) was unspent in the Disaster Response Management (Programme 4).

• This was mainly due to:

0 percent spent against R305 million on the Provincial Disaster Grant.

Only R47.3 million (10.1 percent of R470 million available budget) for the Municipal Disaster Grant, hence a budget of R422.7 million left not transferred. The 47.3 million was paid only to Mpumalanga Province.

The Committee may want to know what is happening in the other 8 provinces and all municipalities that have not been receiving funding for immediate response to disasters.



• Huge under spending on compensation of employees and goods and services due to vacant positions.

The Committee may also want to know the reasons for not filling vacant positions in this programme. Also is the duration of these vacancies, still parameters of the Public Service Regulation.

• R934 million for the local equitable share not paid to municipalities due to the offsetting of funds that were not returned to the National Revenue Fund due to under spending on conditional grants in previous years. (Programme 3)

• The Committee may want to have a broader engagement with stakeholders like SALGA, National Treasury and FFC to ascertain if such intervention is credible and based on consensus among all affected parties.



Also implications of this measure on the delivery of equity in the delivery of essential services ought to be critically scrutinised.

- The Committee may also want to know the geographical location of the municipalities affected by this intervention (i.e. from rural areas or urban areas?)

• Lastly, Huge under spending of R3.6 million (R41.5 million) in Programme 2 is attributed to vacant positions and postponed projects


HUMAN SETTLEMENTS

• Improved significantly from the lowest 95.6 percentage spending in 2007/08 to stay above 98 percent since then.

• In 2010/11 spent 99 percent (R22.6 billion against R22.8 billion), hence a budget of R228.9 million left unspent.

As always much of the actual under spending in is concealed by the 100 percent transfer of R21.8 billion to provinces and receiving entities.

These transfers not necessarily translate into actual expenditure.

HUMAN SETTLEMENTS

• huge funds were left unspent in other economic classifications:

R153.9 million (against R647.2 million) left unspent on compensation of employees.

R43.4 million (against R286.2 million) left unspent on Goods and Services

• Major Reasons for under spending

Programme 1 under spent by an amount of R66.4 million (against R233.1 million).

This was mainly due to change of mandate of the Special Investigation Unit and non- utilisation of funds for the leasing of additional offices.

HUMAN SETTLEMENTS

• Programme 2 under spent by R6.6 million (against R39.4 million) mainly due to vacant positions emanating from a departmental turn-around strategy.

• Programme 3 under spent by an amount of R8.3 million (against R195 million) mainly due to vacant positions emanating from a departmental turn-around strategy.

• Programme 4 under spent by R92.2 million (against R23.2 billion). This is mainly due:

to vacant positions emanating from a departmental turn-around strategy

R70.2 million unspent/transferred on the Rural Household Infrastructure Grant

HUMAN SETTLEMENTS

The Turn-Around Strategy is the major reason for the unfilled vacancies and ultimately under spending in the Department.

o Members may want to know about the reasons, nature and duration of this turn-around strategy.

o It would seem that this has been used as an excuse for some time.

Poor performance on the Rural Household Infrastructure Grant is a recurring issue

o A cause for concern given the urgent need to reduce backlog thereby necessitate service delivery in rural communities.

o In fact the Committee may want to know the actual performance per province on this grant.

HUMAN SETTLEMENTS

The Committee may want to know about the actual spending performance on the following grants/transfers in which 100 percent transfer was achieved:

o Human Settlement Development Grant to provinces (R14.9 billion)

o Urban Settlement Development Grant to municipalities (R6.3 billion

o Rural Housing Loan Fund (R19.3 million)

o R89.1 million to the National Urban Regulatory Authority

o R180 million to the Social Housing Regulatory Authority

HUMAN SETTLEMENTS

The Turn-Around Strategy is the major reason for the unfilled vacancies and ultimately under spending in the Department.

o Members may want to know about the reasons, nature and duration of this turn-around strategy.

o It would seem that this has been used as an excuse for some time.

Poor performance on the Rural Household Infrastructure Grant is a recurring issue

o A cause for concern given the urgent need to reduce backlog thereby necessitate service delivery in rural communities.

o In fact the Committee may want to know the actual performance per province on this grant.

HUMAN SETTLEMENTS

Presentation of the Fourth Quarter Expenditure Analysis 2011/12

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