29 August 2012

29 August 2012

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financeDepartment: Department of FinanceNorth West Provincial GovernmentRepublic of South Africa

The purpose is to present: -

Plans/ Systems to deter fraud and corruption in all provincial departments.

The report on the overall provincial expenditure for the 2011/12 financial year that ended 31 March 2012.

Indicate the 2012/13 year-to-date provincial expenditure for the first quarter ended 30 June 2012.

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PT enforces compliance through regular audits and SCM compliance reviews, assess delegations and segregation of duties, etc

All service providers are registered on a Central Supplier Database. Acquired an E-Procurement tool. The automated system ensures

supplier rotation. Blacklisting of service providers, contractors, consultants, suppliers,

due to poor performance, poor track records and/or unduly influencing the outcome of bidding in their favour, etc.

Issue directives to departments to rotate the SCM Officials within their SCM units.

Vetting of all SCM Officials Frequent training is offered to departments and Public Entities on

SCM Policies and practices, DBAC, etc. Establishment of Risk Management Units in departments to

increase awareness of fraud and corruption and to deter such activities.

Intervention in Municipalities regarding the AFS, Capacity building, appointments and skilling of staff through financial training

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Envisages the use of transversal and or general period contract in the province.

The option of price-benchmarking (in particular for quotations) is being considered to prevent inflated prices through collusion of officials.

Departments to inform the Provincial Treasury of all payments of R1million and above, where quotations are obtained. PT to verify the bank account of such service providers.

Development of a contract inventory of all existing contracts for meticulous scrutiny and reviews with a link to the existing suppliers registered on the Central Supplier Database.

Directives to departments to monthly report on all contracts awarded and concluded inclusive of payments made.

Restricting government officials from doing business in their departments or other government departments linking and verification with PERSAL.

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Daily scrutiny of exceptions generated by the PERSAL System to identify any irregular payments and take necessary actions to stop the payments

Imposing thresholds of approval at stages of contracting or contract administration processes.

Address the institutional weaknesses in the SCM processes through establishment of structured committees and the appointment of competent officials.

Pre-employment screening is encouraged in departments to do thorough background checks, such as prior employment history, tertiary qualifications and memberships of professional associations of employees and contractors, service providers, etc.

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Low spending of 90% and below is registered for the Office of the Premier, departments of Sport, Arts & Culture, Economic Development, Environment, Conservation & Tourism, Public Works, Roads & Transport and Agriculture & Rural Development.

Highest spending is registered in the Provincial Legislature, Departments of Health, Education & Training, Social Development, Women, Children & Person with Disabilities and Human Settlements, Safety and Liaison (Human Settlement Branch) all above 97%.

The provincial expenditure as at 31 March 2012 is 95.62% or R23.939 billion.

Pre Audited AFS Percentage Pre Audited AFSBudgeted Expenditure of budget (over)/underAmount as at spent expenditure

31/03/2012 to date for the yearR' 000 R' 000 % R' 000

1 Office of the Premier 225 882 201 627 89.26% 24 255 2 Provincial Legislature 166 341 163 954 98.56% 2 387 3 Health 6 413 542 6 380 255 99.48% 33 287 4 Sport, Arts and Culture 463 658 408 185 88.04% 55 473 5 Human Settlements, Safety and Liaison (Public Safety Sector) 351 831 334 939 95.20% 16 892 6 Economic Development, Environment, Conservation and Tourism 458 042 384 726 83.99% 73 316 7 Department of Finance 324 195 299 916 92.51% 24 279 8 Education and Training 10 424 056 10 148 134 97.35% 275 922 9 Local Government and Traditional Affairs 329 998 320 074 96.99% 9 924

11 Public Works, Roads and Transport 2 890 404 2 425 648 83.92% 464 756 12 Social Development, Women, Children and Person with Disabilities 897 196 883 009 98.42% 14 187 13 Agriculture and Rural Development 778 609 690 744 88.72% 87 865 15 Human Settlements, Safety and Liaison (Human Settlement Sector) 1 312 564 1 298 402 98.92% 14 162

25 036 318 23 939 613 95.62% 1 096 705

Programme

Total

Education & Training• Underspending is mainly on Compensation of Employees due to the non

expenditure on the lap top priority which was not cost benefit to the teachers and Grade R teachers not being appointed as excess educators were trained and placed in those posts.

• The late submission of invoices from Suppliers for Learner Teacher Support material just after the closure of the year-end, the lower number of learners enrolment in school and Grade R resulted and the late commencement of infrastructure projects further resulted in underspending and committed funds in this regard were requested for rollover.

Public Works, Roads and Transport• Underspending mainly relates to conditional grants of which the Provincial Roads

and Maintenance Grant (R246m) based on the review of the committed IGP projects with the PRMG, which was only finalized in March 2012. A rollover of R107 million has been approved accordingly.

• Furthermore R80 million which was allocated for the Koster/ Lichtenburg Road was not spent due to the contractual dispute between the department and the contractor.

• Inaccurate tax invoices and delays by municipalities to invoice the department for Rates and Taxes contributed to underspending.

• Payments could not be processed based on the late submission of invoices by transport operators or commuter and learner transport operations.

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Spending on Compensation of Employees, Transfer Payments and Goods & Services are the highest at 98%, 95% and 95% respectively with lowest spending registered on Equipment at 77% and Land and Buildings at 84%.

Underspending is registered on all the economic classification areas; mainly on Compensation of Employees with R352 million, Goods & Services with R230 million, Transfer Payments with R190 million and Land & Buildings with R271 million.

Pre Audited AFS Percentage Pre AuditedBudgeted Expenditure of budget (over)/underAmount as at spent expenditure

31/03/2012 to date for the yearR' 000 R' 000 % R' 000

14 352 753 14 000 041 97.54% 352 712 4 141 766 3 952 225 95.42% 189 541 4 588 292 4 358 034 94.98% 230 258

Interest on Rent on Land 683 1 904 278.77% (1 221) Financial Assets Current 5 6 783 135660.00% (6 778)

Sub-total: Current 23 083 499 22 318 987 96.69% 764 512 Capital Expenditure -

268 632 207 845 77.37% 60 787 1 680 907 1 409 911 83.88% 270 996

3 280 2 870 87.50% 410 Sub-total: Capital 1 952 819 1 620 626 82.99% 332 193 Total Expenditure 25 036 318 23 939 613 95.62% 1 096 705

Compensation of employees

Goods and Service

Equipment

Transfer Payments

Other Capital ExpenditureLand and Buildings

Economic Classification

Current Expenditure

The average provincial spending on Compensation of Employees is 97.54% or R14 billion of the allocated budget of R14.4 billion.

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R' 000 R' 000 % R' 0001. Office of the Premier 109 817 101 554 92.48% 8 263 2. Provincial Legislature 54 086 53 645 99.18% 441 3. Health 3 790 738 3 786 765 99.90% 3 973 4. Sport, Arts and Culture 161 620 141 809 87.74% 19 811 5. Human Settlements, Safety and Liaison (Public Safety Sector) 245 800 227 192 92.43% 18 608 6. Economic Development, Environment, Conservation and Tourism 115 107 105 249 91.44% 9 858 7. Department of Finance 156 956 149 795 95.44% 7 161 8. Education and Training 7 989 372 7 781 175 97.39% 208 197 9. Local Government and Traditional Affairs 193 979 182 172 93.91% 11 807 11. Public Works, Roads and Transport 658 381 609 671 92.60% 48 710 12. Social Development, Women, Children and Person with Disabilities 423 175 422 902 99.94% 273 13. Agriculture and Rural Development 362 121 347 046 95.84% 15 075 15. Human Settlements, Safety and Liaison (Human Settlement Sector) 91 601 91 066 99.42% 535 Total : Provincial Departments 14 352 753 14 000 041 97.54% 352 712

Compensation of Employees per Provincial Department

Available Personnel

Budget 2011/12

Actual Expenditure

as at 31/03/2012

% Spent of Available Budget

2011/12

IYM Projected (over)/under expenditure 31/03/2012

The highest underspending is recorded in the Department of Education & Training and Public Works, Roads and Transport mainly due to the delay in filling vacant positions.

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The 2011/12 budget for conditional grants is R4.815 billion with expenditure at 91.01% or R4.382 billion and summarized per department as follows: -

The provincial spending on conditional grants averages 91.01%, which is a decrease of 2.67% when compared to the same period last year where 6.85% expenditure was registered.

National Treasury and National Departments approved the rollover of R266 million on conditional grants based on funds committed to identifiable projects.

However an amount of R167 million are to be surrendered to the National Departments due to non-commitment of funds to identifiable projects.

Conditional Grant Allocations within the North West Provincial Departments

Approved Budget 2010/11

Expenditure as at

31/03/2011

% Spent of Budget 2010/11

Actual (Over)/Under expenditure for the year ending 31

March 2011


Pre Audited AFS

Expenditure as at

31/03/2012


Pre Audited AFS

(Over)/Under expenditure for the year ending 31 March 2012

R' 000 R' 000 % R'000 R' 000 R' 000 % R'000

Health 1 161 702 1 161 586 99.99% 116 1 443 079 1 383 622 95.88% 59 457

Sport, Arts and Culture 110 301 71 655 64.96% 38 646 120 765 95 063 78.72% 25 702

Education and Training 782 644 716 609 91.56% 66 035 1 137 676 1 109 540 97.53% 28 136

Public Works, Roads and Transport 779 129 772 108 99.10% 7 021 754 391 463 257 61.41% 291 134

Social Development, Women Children and Person with Disabilities 1 427 1 427 0.00% - 10 955 10 955 100.00% -

Agriculture & Rural Development 141 107 140 070 99.27% 1 037 183 504 168 464 91.80% 15 040

Human Settlements, Public Safety and Liaison 1 188 973 1 038 639 87.36% 150 334 1 164 550 1 151 077 98.84% 13 473

Total Conditional Grant Expenditure for 2010/11 & 2011/12 4 165 283 3 902 094 93.68% 263 189 4 814 920 4 381 978 91.01% 432 942

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The provincial infrastructure budget (excluding conditional grants) equals R936 million and preliminary spending is 78.05% or R730.8 million as at 31 March 2012.

The current provincial infrastructure spending is a 1.57% increase when compared to the same period last year, where expenditure was 76.48%. The underspending of R206 million is mainly in the departments of Public Works, Roads and Transport with R92.7 million, Agriculture & Rural Development with R57.6 million, Sport, Arts & Culture with R28.2 million. The departments of Local Government & Traditional Affairs spent the highest at 94% with lowest spending of 19,8% in Sport, Arts and Culture.

R' 000 R' 000 % R' 000 R' 000 R' 000 % R' 000Health 142 509 113 581 79.70% 28 928 44 904 40 312 89.77% 4 592 Sport, Arts and Culture 14 200 6 675 47.01% 7 525 35 259 6 981 19.80% 28 278 Economic Development, Environment, Conservation and Tourism 51 000 42 077 82.50% 8 923 31 710 27 710 87.39% 4 000 Education & Training 112 250 68 380 60.92% 43 870 90 000 80 379 89.31% 9 621 Local Government and Traditional Affairs 79 814 71 957 90.16% 7 857 84 737 80 033 94.45% 4 704 Public Works, Roads and Transport 432 000 340 660 78.86% 91 340 513 499 420 792 81.95% 92 707 Social Development, Women, Children and Person with Disabilities 50 390 26 697 52.98% 23 693 40 000 35 960 89.90% 4 040 Agriculture and Rural Development 35 000 31 399 89.71% 3 601 96 280 38 713 40.21% 57 567

Total Infrastructure Expenditure for 2010/11 & 2011/12 917 163 701 426 76.48% 215 737 936 389 730 880 78.05% 205 509


Pre-Audited AFS

Expenditure as at

31/03/2012

% Spent of Budget as at 31/03/2012

Total Infrastructure Allocations (excludes conditional grants) within the North West Provincial Departments


Audited Expenditure

as at 31/03/2011

% Spent of Budget as at 31/03/2011

Audited (Over)/Under expenditure

as at 31/03/2011

Pre-Audited AFS

(Over)/Under expenditure

as at 31/03/2012

Some departments do not have key personnel, such as the HOD, CFO’s, Planning, Monitoring & Evaluation Officials, etc and these risks financial resource management being given insufficient professional leadership at the very top of departments;

The lack of capacity to plan, skills and strategies to implement and deliver infrastructure and conditional grant projects.

SCM deliverables in areas of advertisement of Tenders, adjudication and awarding; delegations, etc. require improvements and shorter turn-around time.

Monitoring and obtaining invoices for payments from Service providers for services rendered and the effective delegations for approval of payments within 30 days of services rendered;

The lack of financial skills and awareness on government policies & prescripts amongst many finance and non-finance staff remains a significant barrier to improving financial resource management across departments

Poor cashflow/ expenditure forecasting led to departments exceeding their Departmental Expenditure Limits and conversely, where the unanticipated underspending was not identified sufficiently early, the opportunities for unspent funds to be reallocated to other key priorities were lost, hence the underspending of R1 billion.

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All the departments spent below the estimated 25 percent with the highest spending by the Provincial Legislature with 24.84 percent and Human Settlements, Safety & Liaison (Human Settlement Branch) with 24.78 percent.

Lowest spending is registered in the Departments of Public Works, Roads & Transport with 11.58 percent and Agriculture & Rural Development spending 14.24 percent.

The provincial expenditure as at 30 June 2012 is 20.05 percent or R5.267 billion of the annual budget of R26.272 billion.

The average spending of 20.05 percent is a 0.90 percent decrease when compared to the same last year when the expenditure was 20.95 percent or R5.125 billion against the allocated budget of R24.464 billion.

IYMProjected

(over)/underexpenditure 30/06/2012

R' 000 R' 000 % R' 0001. Office of the Premier 236 006 44 872 19.01% 1 467 2. Provincial Legislature 165 310 41 055 24.84% - 3. Health 6 959 308 1 378 351 19.81% - 4. Sport, Arts and Culture 447 106 77 457 17.32% - 5. Human Settlements, Safety and Liaison (Public Safety Sector) 378 712 79 072 20.88% (2 651) 6. Economic Development, Environment, Conservation and Tourism 426 945 87 604 20.52% - 7. Department of Finance 371 924 70 202 18.88% - 8. Education and Training 10 872 212 2 484 492 22.85% - 9. Local Government and Traditional Affairs 332 164 62 590 18.84% - 11. Public Works, Roads and Transport 3 082 001 357 037 11.58% - 12. Social Development, Women, Children and Person with Disabilities 949 701 166 351 17.52% (26 925) 13. Agriculture and Rural Development 850 993 121 152 14.24% 98 287 15. Human Settlements, Safety and Liaison (Human Settlement Sector) 1 199 336 297 190 24.78% (65 045) Total : Provincial Departments 26 271 718 5 267 425 20.05% 5 133

Percentage spent of available

budget as at 30/06/2012

Provincial Departments

Budgeted Amount

Actual Expenditure incured as at 30/06/2012

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Spending on all Economic Classification items are below the estimated 25 percent with the highest spending of 23.29 percent on Compensation of Employees.

It is clear that emphasis is made on the payment for Compensation of Employees with a substantive lack of planning, implementation and spending on core service delivery areas, such as Land & building and Goods & Services which all registered spending below 14 percent.

The low spending trend by departments on these economic classification items, apart from Compensation of Employees, may have a negative bearing on areas such as maintenance of schools, clinics, hospitals, roads and government buildings as some of these assets are in a state of paralyses and will result in under spending at the end of this financial year, in particular on infrastructure.

R' 000 R' 000 % R' 000Current Expenditure

Compensation of employees 15 174 159 3 533 731 23.29% (39 401) Transfer Payments 4 091 452 796 982 19.48% 108 339 Goods and Services 4 851 475 669 675 13.80% (63 821)

1 843 47 2.55% - Sub-total: Current 24 118 929 5 000 435 20.73% 5 117 Capital Expenditure

Equipment 254 866 10 291 4.04% 16 Land and Buildings 1 897 353 256 699 13.53% - Other Capital Expenditure 570 - 0.00% -

Sub-total: Capital 2 152 789 266 990 12.40% 16 Total Expenditure 26 271 718 5 267 425 20.05% 5 133

Budgeted Amount

2012/2013

Actual Expenditure

incurred as at 30/06/2012



Economic Classification

IYM Projected (Over)/Under expenditure 30/06/2012

Interest on Rent on Land

The overall provincial spending on Compensation of Employees is 23.29 percent or R3.533 billion of the allocated budget of R15.174 billion.

Highest spending is registered on Provincial Legislature with 26.56 percent with lowest spending of 17.11 percent by the Department of Finance.

The departments of Social Development, Women, Children & Person with Disabilities and Human Settlements, Safety & Liaison (Human Settlements Branch) project to overspend on their Compensation of Employees by R26.9 million and R20 million respectively, whilst the Department of Agriculture & Rural Development projects to underspend by R7.5 million.

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Compensation of Employees per Provincial Departments Budgeted Amount

2012/2013

Actual Expenditure

incurred as at 30/06/2012



IYM Projected (Over)/Under expenditure 30/06/2012

R' 000 R' 000 % R' 0001. Office of the Premier 117 060 27 001 23.07% - 2. Provincial Legislature 81 335 21 606 26.56% - 3. Health 3 988 666 943 493 23.65% - 4. Sport, Arts and Culture 165 256 36 659 22.18% - 5. Human Settlements, Safety and Liaison (Public Safety Sector) 283 105 58 024 20.50% - 6. Economic Development, Environment, Conservation and Tourism 122 032 27 161 22.26% - 7. Department of Finance 217 830 37 281 17.11% - 8. Education and Training 8 348 820 1 961 247 23.49% - 9. Local Government and Traditional Affairs 213 664 49 238 23.04% - 11. Public Works, Roads and Transport 726 328 148 721 20.48% - 12. Social Development, Women, Children and Person with Disabilities 449 943 111 559 24.79% (26 925) 13. Agriculture and Rural Development 363 738 87 679 24.10% 7 524 15. Human Settlements, Safety and Liaison (Human Settlement Sector) 96 382 24 062 24.97% (20 000) Total : Provincial Departments 15 174 159 3 533 731 23.29% (39 401)

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The 2012/13 budget for conditional grants is R4.939 billion with the expenditure at 16.33 percent or R806.8 million and summarized per department as follows: -

The provincial spending on conditional grants averages 16.33 percent, a decrease of 0.54 percent when compared to last year where expenditure was registered at 16.87 percent.

Departments of Human Settlements, Public Safety & Liaison spent the highest with 24.35 percent, followed by Education & Training with 21.08 percent. Spending of less than 5 percent is registered by the department of Public Works, Roads & Transport and Agriculture & Rural Development with Social Development, Women, Children & Person with Disabilities having zero spending.

Conditional Grant Allocations within the North West Provincial Departments


Expenditure as at

30/06/2011



Expenditure as at 30/06/2012


R' 000 R' 000 % R' 000 R' 000 %

Health 1 442 973 284 778 19.74% 1 563 592 252 871 16.17%

Sport, Arts and Culture 97 956 11 503 11.74% 102 373 14 387 14.05%

Education and Training 1 065 108 208 750 19.60% 1 137 785 239 889 21.08%

Public Works, Roads and Transport 744 987 61 508 8.26% 860 104 40 079 4.66%

Social Development, Women Children and Person with Disabilities 10 955 3 876 0.00% 11 657 - 0.00%

Agriculture & Rural Development 180 744 13 247 7.33% 212 834 3 575 1.68%

Human Settlements, Public Safety and Liaison 998 376 182 461 18.28% 1 050 933 255 950 24.35%

Total Conditional Grant Expenditure for 2011/12 & 2012/13 4 541 099 766 123 16.87% 4 939 278 806 751 16.33%

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The provincial infrastructure budget (excluding conditional grants) equals R961 million with expenditure of R40.1 million or 4.18 percent spending as at 30 June 2012.

The provincial spending on infrastructure averages 4.18 percent, which is a decrease of 7.43 percent when compared to the same period last year where expenditure was registered at 11.61 percent. Two departments, Economic Development, Environment, Conservation & Tourism and Local Government & Traditional Affairs, reflect no spending on infrastructure for the quarter ending 30 June 2012, which is unacceptable based on existing infrastructure projects that were carried over to this financial year for which services were rendered and awaiting payment.

R' 000 R' 000 % R' 000 R' 000 %Health 76 553 7 854 10.26% 60 730 3 619 5.96%Sport, Arts and Culture 33 000 - 0.00% 19 472 1 807 9.28%Economic Development, Environment, Conservation and Tourism 31 710 - 0.00% 10 510 - 0.00%Education & Training 90 000 10 885 12.09% 80 000 2 680 3.35%Local Government and Traditional Affairs 78 000 7 174 9.20% 69 000 - 0.00%Public Works, Roads and Transport 555 499 86 219 15.52% 550 422 23 432 4.26%Social Development, Women, Children and Person with Disabilities 40 044 4 306 10.75% 30 501 6 033 19.78%Agriculture and Rural Development 108 280 1 217 1.12% 140 015 2 564 1.83%

Total Infrastructure Expenditure for 2011/12 & 2012/13 1 013 086 117 655 11.61% 960 650 40 135 4.18%


Actual Expenditure

as at 30/06/2011


Infrastructure Allocations (excludes conditional grants) within the North West Provincial Departments


Actual Expenditure

as at 30/06/2012


The provincial expenditure as at 30 June 2012 is at 20.05 percent or R5.267 billion and the expenditure trends for the first quarter of the financial year reflect that the province recorded a consolidated expenditure, which is 4.95 percent below the expected target of 25 percent.

Underspending of R98.287 million is registered by the Department of Agriculture & Rural Development and mainly relates to Transfer Payments to the tune of R108 million and Compensation of Employees with R7.5 million, whilst overspending is projected on Goods & Services with R16.8 million.

Overspending of R65 million and R26.9 million is projected by the departments of Human Settlement, Safety & Liaison (Human Settlement Branch) on Compensation of Employees (R20m) and Goods & Services (R45m) as well as Social Development, Women, Children & Person with Disabilities with R26.9 million on Compensation of Employees.

The conditional grant expenditure of 16.33 percent or R806.7 million as at 30 June 2012 is not acceptable given; the purpose and importance of these funding allocations as highlighted in the Division of Revenue Act and the Conditional Grant Framework.

The low spending of 4.18 percent and non-spending on infrastructure funds are unacceptable given the poverty and unemployment levels in the province as well as the need for upgrading and maintenance at schools, clinics, hospitals, roads and government buildings.

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Departments that under spent on conditional grant allocations must provide explanations for the under spending in terms of section (11) and (12) of the Division of Revenue Act, Act No. 5 of 2012.

Given the underspending in these areas; departments responsible for infrastructure and conditional grant funds were urged to put remedial actions in place to improve planning and implementation of projects given the essential service delivery initiatives, poverty and unemployment levels in the province.

Departments that materially underspent should submit plans that address their underspending and motivate why their current baseline allocations should not be reduced accordingly to free the funds for other departments that have capacity and plans to spend during this financial year.

Departments must monthly and quarterly link their financial and operational performance information to know exactly what has been spent on what programmes and to what effect as well as to assess whether they are achieving value for money and engage on areas of underperformance more rigorously.

Departments must improve their capacity to comprehensively monitor and assess financial and non-financial performance through the appointment of skilled staff, filling the key vacant positions and to enhance skills and awareness amongst the staff through training on financial resource management.

Departments must evaluate their capacity to determine whether they are able to administer and spent their allocated funds this year or consider the surrender of funds, during the coming 2012/13 Adjustment Estimate, to other Provincial Departments that have the capacity to absorb and spent the funds on key services.

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29 August 2012