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Provincial Treasury Western Cape

NCOP Select Committee on FinancePublic Hearings

Conditional Grants and Capex

16 January 2006

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Outline• Conditional grant allocations• Transfers• CG – cash flow management• Monitoring transfers• Division of Revenue Act• Expenditure• Monitoring expenditure• Service delivery agreements• The way forward

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Conditional Grant Allocations

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CG Allocations

Budget allocation Rollovers

Adustments estimate

adjusted budget

Agriculture 19 706 2 732 22 438Provincial infrastructure 25 832 13 274 ( 13 350) 25 756Comprehensive agricultural support programme 17 206 2 058 19 264Land care programme grant: Poverty relief 2 500 674 3 174Drought relief 8 634 8 634Agriculture disaster management grant 18 000 18 000

Education 60 093 433 60 526Provincial infrastructure grant 55 229 14 336 13 350 82 915HIV and Aids (Life skills education) grant 11 198 7 11 205National school nutrition programme grant 40 135 426 8 760 49 321

Health 1 791 347 1 791 347Provincial infrastructure 55 229 55 229Comprehensive HIV and Aids grant 82 451 82 451Health professions training and development 323 278 323 278Hospital management and quality improvement 17 608 17 608Hospital revitalisation grant 172 038 ( 24 000) 148 038Integrated nutrition programme grant 5 288 5 288Forensic pathology services 14 583 14 583National tertiary services grant 1 214 684 1 214 684

Conditional grant allocations – 2005/06

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CG Allocations (2)Budget

allocation RolloversAdustments

estimateadjusted budget

Housing 9 373 96 874 106 247Integrated housing and human settlement dev 456 740 456 740Housing subsidy grant 76 509 76 509Human settlement and redevelopment grant 9 373 20 365 29 738

Tranport and public works 228 847 228 847Provincial infrastructure grant 92 557 3 300 95 857

Provincial and Local Government 24 500 24 500Disaster management grant 24 500 24 500Local government capacity building fund grant 10 560 10 560Prov project mngt capacity for MIG (old CMIP) 223 223

Social Development 4 265 028 4 265 028Food emergency relief grant 16 222 16 222HIV and Aids (Community-based care) grant 6 089 6 089Integrated Social Development Services Grant 20 034 20 034Social Assistance Administration Grant 236 234 236 234Social Assistance Transfers Grant 4 002 671 4 002 671One stop child justice centre 794 794

Sport and Recreation South Africa 2 670 2 670Mass sport and recreation participation prog 2 670 2 670

Total conditional grants 6 849 044 167 382 41 843 7 058 269

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Conditional Grant Transfers

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CG TransfersReconciliation of Conditional Grant Payment Schedule

R000's

National TreasuryProvincial Infrastructure Grant 57 212 4 10 57 212 HealthNational Tertiary Services 101 224 19 101 224 16 1&18 202 448 101 223 21 22 101 223Health Professions Training and Dev 26 940 19 26 26 940 26 940 16 18 26 940 26 940 21 22 26 940Hospital Revitalisation 14 336 19 31 14 336 14 336 16 18 14 336 14 336 21 Hospital Management and Quality Improve 4 402 19 31 4 402 Integrated Nutrition 1 328 19 24 1 328 Forensic Pathology Services 7 292 21 21 7 292Comprehensive HIV and Aids 9 162 19 20 9 162 9 162 16 18 9 162 9 161 21 21 9 161Social Services and Poverty AlleviationHIV and Aids (Community Based Care) Social Assistance (Administration) 19 686 7 7 19 686 19 686 4 4 19 686 19 686 2 2 19 686Social Assistance 285 554 7&27 7 289 127 337 920 1&251&4&25 339 425 394 836 1,28,301,22 399 564Integrated Social Development 10 017 1 1 10 017EducationHIV and Aids (Life Skills Education) 2 799 31 31 2 799 National School Nutrition Programme 10 034 31 31 10 034 Housing Integrated Housing and Human Settlement 40 168 7 7 40 168 46 248 4 4 46 248 71 851 9 9 71 851Human Settlement and Redevelopment 1 618 21 26 1 618 850 21 25 850 495 22 21 495Agriculture Comprehensive Agriculture Support 6 022 10 10 6 022 Land Care Grant 875 10 10 875 Cultural Affairs and SportSport Mass Participation Programme 252 25 25 252

1 490 198 1 392 295 1 579 376 1 682 357 1 621 634 1 612 026

SCHEDULE RECEIVEDPAYMENT ACTUAL

SCHEDULE RECEIVED SCHEDULE RECEIVED

DECEMBERPAYMENT ACTUAL

OCTOBER NOVEMBERPAYMENT ACTUAL

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CG Transfers (2)

Health – Health grants withheld/delayed from time to time. This includes the

National Tertiary Services Grant and the Health Professions Training and Development Grant which according to DORA 2005 may not be withheld

– Reasons cited by the National Department of Health include:– National Tertiary Services Grant: Internal problems within the National

Department of Health– Health Professions Training and Development Grant: systems were down – Hospital Revitalisation Grant: slow spending by the Provincial department

of Health– Hospital Management and Quality Improvement Grant: Provincial

Department of Health failed to submit the required quarterly report

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Conditional Grant - Cash Flow

Management

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CG – Cash Flow Management

• Conditional Grant transfers mostly received according to payment schedule issued by National Treasury

• Funds are transferred directly to the exchequer account• Money transferred to accounts on a regular basis to cover

scheduled payments• Liaise with Provincial and National Departments if

transfers delayed to establish problem• Action with relevant parties to address accordingly• Continuous follow-up to ensure scheduled transfer effected

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Monitoring Transfers

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Monitoring transfers• The Western Cape has experienced some problems with

the late transfer of Conditional Grant payments in 2005/06• As there is no formalised process for monitoring these

transfers, cash management only becomes aware of the intention to withhold transfer on day transfer expected as per payment schedule

• PT recommended a more formalised process to NT to ensure PT alerted of a national departments intention to withhold funds timeously, this recommendation was subsequently taken up in Practice Note 3 of 2005

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Monitoring transfers (2)• This process requires National Departments to, when giving a

receiving officer notice of its intention to withhold funds, send a copy of the notice to National Treasury, who will inform Provincial Treasury of the intended delay

• National Departments are still failing to comply with DORA 2005 and Practice Note 3 requirements

• Provincial Treasury subsequently proposed that National Treasury – ensure that transferring departments are aware of conditions placed on

them in terms of DORA and Practice Note 3 of 2005;– Explore ways to ensure that transferring departments adhere to the

payment schedule and take necessary precautions to ensure that provinces receive funds timeously

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Monitoring transfers (3)

• All 2005/06 business plans have been approved and Service Level Agreements signed

• Provincial Treasury in the process of contacting departments to ensure that business plans for 2006/07 have been submitted to their national counterparts for approval in accordance with the conditional grant frameworks.

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Division of Revenue Act

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Division of Revenue Act• Shortcomings in Division of Revenue Process

– Section 33(2) requires National Departments to notify receiving officers of intention to withhold transfers, providing opportunity for Departments to submit reasons as to why allocation should not be withheld

– No requirement for Provincial Treasuries (PT) to be informed while NT only needs to be informed if funds are to be withheld for more than 30 days

– Administrative burden of negligible grants i.e. Land Care Grant R2,5 million with numerous reports required

– Cash constraints place upon Province when funds withheld as commitments exist

– Overlapping of measurable outputs– Conditions of grants limit flexibility

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DORA review process• Intergovernmental fiscal relations act (Act 97 of 1997)

requires National Treasury to consult provinces and municipalities when drafting DOR bill

• Treasury circular sent to line departments requesting departmental concerns and recommendations regarding DORA 2005 to be considered in DORA 2006.

• Meetings were to be scheduled with line departments where deemed necessary based on inputs received from departments.

• Consolidated input to be sent to National Treasury, awaiting first draft on DORA 2006 to make additional comments

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Expenditure

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CG Expenditure - Agriculture

Agriculture – CG Expenditure as at 31 December 2005Spent by Province Projection

Spent and projection

Adjusted budget

Spent as % budget Deviation

Provincial infrastructure (PIG) 9 481 16 275 25 756 25 756 36.8%

Land care 2 194 980 3 174 3 174 69.1%Comprehensive agriculture support programme 8 513 10 751 19 264 19 264 44.2%

Agriculture disaster management 4 500 13 500 18 000 26 634 16.9%

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CG Expenditure – Agriculture (2)

• Challenges to overcome– Provincial infrastructure (PIG)

• Planning and survey of projects and the approval of plans by the engineering section is time consuming and must take place before the tender process can commence

• Difficulties experienced with tender process, tender applications were referred back by the tender committee and have to be re submitted

• Seasons – harvest time of crops during the fourth quarter leads to increased procurement, repair and maintenance of capital equipment

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CG Expenditure – Agriculture (3)– Land care grant

• The eradication of invasive plants is seasonal as they start growing in summer.

• Project execution is dependent on farmers who manage the project and only commences once farmers have harvested their crops

– Comprehensive agriculture support programme• Lack of community participation and agreement on projects• Difficulty in getting commitment from communities – when discontinuing a

project the process of finding alternative projects and reallocating funds is a lengthy process

• Seasonal expenditure – some projects can only commence in planting season• Memorandum of agreement between Department and implementing agents is

lengthy – this process must be finalised before transfer payments can be made

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CG Expenditure - Education

Education – CG Expenditure as at 31 December 2005Spent by Province Projection

Spent and projection

Adjusted budget

Spent as % budget Deviation

Provincial infrastructure (PIG) 42 461 40 104 82 565 82 565 51.4%National school nutrition programme 28 187 21 134 49 321 49 321 57.2%HIV and Aids (Life skills education) 8 529 2 676 11 205 11 205 76.1%

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CG Expenditure – Education (2)

• Challenges to overcome– Provincial infrastructure (PIG)

• The Department received additional funds in the adjustments estimate for projects that will commence in January 2006

• Inefficient planning processes and delays in technical tendering processes are being tackled systematically

– National school nutrition programme• Delay in the submission of claims by service providers results

in slow payment by the department• Moving forward the Department will transfer funds directly to

schools to allow them to set up mobile kitchens with the assistance of EMDC’s for the distribution of feeding schemes

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CG Expenditure - Health

Health – CG Expenditure as at 31 December 2005Spent by Province Projection

Spent and projection

Adjusted budget

Spent as % budget Deviation

Provincial infrastructure (PIG) 33 529 21 700 55 229 55 229 60.7%

Comprehensive HIV and AIDS 66 815 25 636 92 451 82 451 81.0% ( 10 000)Health professions training and development 242 453 80 825 323 278 323 278 75.0% Hospital management and quality improvement 7 997 9 611 17 608 17 608 45.4%

Hospital revitalisation 74 227 35 663 109 890 148 038 50.1% 38 148

Integrated nutrition programme 2 723 2 565 5 288 5 288 51.5%

National Tertiary services 911 014 303 670 1 214 684 1 214 684 75.0%

Forensic pathology services 14 583 14 583 14 583 0.0%

Comprehensive HIV and Aids – R10 million over expenditure to be funded through equitable share funds

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CG Expenditure – Health (2)

• Challenges to overcome– Provincial infrastructure grant (PIG)

• On site problems

• The late submission of claims

• Journalising of expenditure wrongly classified

• Limited project management capacity to manage vast number of projects

– Hospital management and quality improvement• The creation of additional posts took longer than expected

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CG Expenditure - Health (3)– Hospital revitalisation programme:

• Slow performance of contractors on various projects• Worcester Hospital – a shopping centre is being built in the same

area resulting in competing for resources results in delay in construction

• Paarl hospital – Delay in the approval of the business plan• The Department proposed the purchase of two linear accelerators

for Tygerberg Hospital to offset the under expenditure but as no business plan had been approved this was not possible

– Integrated nutrition programme• Claims outstanding from the City of Cape Town and rural

regions

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– Forensic pathology services• Voted in the 2005/06 adjustments estimate

• First tranch received in December

• R5 million transferred to the Department of Transport and Public Works for the purchase of motor vehicles

• Expenditure for the remaining R9,583 million is dependent on approval by the National Department of Public Works, the National Department of Health and SAPS.

CG Expenditure - Health (4)

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CG Expenditure – Local Government and

Housing

Local government and Housing – CG Expenditure as at 31 December 2005Spent by Province Projection

Spent and projection

Adjusted budget

Spent as % budget Deviation

Integrated housing and human settlement development 363 023 170 226 533 249 533 249 68.1%Human settlement and redevelopment 12 904 11 164 24 068 29 738 43.4% 5 670

Disaster relief 24 500 24 500 24 500 0.0%

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CG Expenditure – Local Government and

Housing (2) • Challenges to overcome

– Human settlement and redevelopment grant• Tender approval process taking longer than

expected

• Maintenance projects that will not be completed by the end of the financial year

– Disaster relief• Funds will only be transferred in March 2006

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CG Expenditure – Social Services

Social services and poverty alleviation: CG Expenditure as at 31 December 2005Spent by Province Projection

Spent and projection

Adjusted budget

Spent as % budget Deviation

Social assistance transfers 3 010 696 991 975 4 002 671 4 002 671 75.2%

Social assistance administration 134 031 102 203 236 234 236 234 56.7%Integrated social development services 197 19 837 20 034 20 034 1.0%HIV and Aids (Community Based Care) 5 197 892 6 089 6 089 85.4%

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CG Expenditure – Social Services (2)

• Challenges to overcome

– Integrated Social Development Services

• Looking at more a integrated way of poverty alleviation (working together with other departments and local government) resulted in delays

• Lag between IYM figures and actual spending, substantial spending has taken place

– Social Assistance Administration

• Establishment for support services staff for SASSA has not been approved by National Department of Social Development

• Social Services pay administrative costs and claim back from SASSA

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CG Expenditure – Transport and Public Works

Transport and public works: CG Expenditure as at 31 December 2005Spent by Province Projection

Spent and projection

Adjusted budget

Spent as % budget Deviation

Provincial infrastructure (PIG) 90 483 5 374 95 857 95 857 94.4%

The Department has spent 94.4 per cent of the budgeted amount for the grant as at 31 December 2005. This is above the national spending benchmark of 75 per cent.

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Capital Expenditure

Capital expenditure as at 31 December 2005Spent by Province Projection

Spent and projection

Adjusted budget

Spent as % budget Deviation

Payments for capital assets 954 419 548 597 1 503 016 1 541 818 61.9% 38 802

Capital expenditure is within an acceptable range.

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Infrastructure Expenditure

Adjustments budget

Spent by Province

Spent as % budget

Education 373 808 272 613 72.9%

Health 296 805 152 678 51.4%

Agriculture 25 756 9 366 36.4%

Public w orks 107 471 55 082 51.3%

Roads 821 343 610 704 74.4%

Public transport 124 205 62 404 50.2%

Total 1 749 388 1 162 847 66.5%

Preliminary infrastructure expenditure as at 31 December 2005

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Infrastructure Expenditure (2)

• Challenges to overcome– Bottlenecks in the procurement process– Inefficiencies in the link between planning,

budgeting and implementation– Capacity constraints

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Monitoring Expenditure

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Monitoring Provincial Expenditure

• Monthly reports to NT• Quarterly reports to Top Management, Exco and

Legislature (SCOF)• Quarterly narrative reports to AOs and CFOs• Frequent interaction with departments on spending

performance and general issues• Quarterly meetings between MEC’s for finance, education,

health and public works to discuss infrastructure spending and other difficulties

• Continuous engagements with departments in a co-operative manner to jointly seek solutions

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Monitoring Local Government Expenditure

• 24 municipalities directly and 6 municipalities indirectly.• S71 of MFMA: Monthly reports to PT & NT and quarterly Provincial

Legislature.• IYM introduced in municipalities 1 July 2005 to monitor the budget

outcomes.• Various municipal financial systems and capacity make it difficult for

municipalities to comply. • Provide assistance to municipalities which could enable them to comply. • 11 municipalities submit the full IYM model while 19 municipalities submit

a summary version of the IYM.• Developed a provincial IYM database.• Discussions with NT access to NT database.• Currently assessing the IYM and due to submit a report.• Assessed all municipal revenue and expenditure to determine the

affordability of increases in Councillor remuneration.• CFO Forum: PT with municipalities, quarterly on financial matters.

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Service Delivery Agreements

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Service Delivery Agreements

• Agreements concluded between implementing agent (Department of Transport and Public Works) and client department (Departments of Education and Health)

• Key aspects covered include:– Scope of Delivery– Roles and responsibilities– Programme and project control– Service levels– Resolution of differences and disputes

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The Way Forward

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The way forward• Build on financial and non-financial quarterly reports to

Legislature, Exco and Top Management: to better inform engagement with departments

• Paradigm shifts – for alignment of infrastructure cycle with the budget cycle

• Legislation needs to be more enabling – conditions result in delay in service delivery

• There needs to be certainty regarding funding levels and the flow of funding, this is especially relevant for infrastructure spending

• Ensure the early sign off of business plans• Care should be taken to ensure that conditions placed on

conditional grants do not impact on service delivery

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Discussion