Conditional Grants 2019/20 Quarter 3 spending

Meeting report

Conditional Grants 2019/20 Quarter 3 spending
Ms Ogalaletseng Gaarekwe, Chief Director: Budget Analysis at National Treasury, said Provincial Conditional Grants come in two categories:
• Schedule 4A grants supplement funding of programs or functions funded from provincial budgets such as the Provincial Road Maintenance Grant.
• Schedule 5A conditional grants are specific purpose that must be spent following a framework.

Agricultural Grants 
This sector has three grants: Comprehensive Agricultural Support Grant (CASP), Land Care Programme Grant and Ilima/Letsema Programme Grant. On funding, the focal point is the CASP grant. CASP has the overall lowest spending and Land Care the highest at 70.8%. CASP spent 48.1% and only two provinces spent above 60% of the budget (Northern and Western Cape). Northern Cape is doing well and spent more than what was transferred due to its drought situation.

Challenges
• Slow progress due to delay in business plan approval.
• Delay in the approval of designs and plans by Municipalities
• Slow supply chain management (SCM) resulting in extension officers not having tools of the trade and in inputs such as seeds and fertilizer not being procured on time.
• Suppliers not meeting the specifications which delays the process further
• Non-delivery of materials such as fencing in some provinces.

Arts and Culture Grants
This sector has one grant: Community Library Services Grant for the building of community libraries. 67.1% in aggregate was spent of the total budget of R1.5 billion. Only two provinces spent below 60% (Mpumalanga and Limpopo). The main issue here is infrastructure.

Basic Education Grants
Education has five grants. The Education Infrastructure Grant has a budget of R10.8 billion and 60% of the budget was spent. HIV/AIDS Life Skill Education Grant spent 72.1%. The Learners with Severe and Profound Learning Disability (LSPID) Grant which is new spent 54.1%. The Maths, Science and Technology Grant had the lowest spending in this sector. They do a lot of procurement for maths grant e.g. getting laboratories. It is only doing well in Free State. The National School Nutrition Grant (NSNG) has a budget of 7.2 billion is the second biggest after the education infrastructure grant.

Challenges
• Delays in the recruiting process resulting in key staff such as the LSPID grant not being appointed on time.
• Learners recommended for placement in schools not being placed due to limited school resources (human and infrastructure) – LSPID.
• HR delays in transferring Cuban specialists to the four provinces for Maths, Science and Technology.
• Machinery, Equipment and Tools for Technical Schools were not procured on time due to SCM challenges. The department is however finalising a transversal contract that will alleviate procurement challenges.
• Incidents of poor feeding on the NSNP and service providers not being paid on time.
• Planning delays for the construction of new schools and maintenance projects on the Education Infrastructure Grant.
• Accounts not settled for projects that completed in the previous financial years.

Health Grants
Health has six grants – the highest number of grants. There is HIV, TB, Malaria Community Outreach. Its budget is R22 billion and 70.8% was spent as of 31 December. The Infrastructure Grant maintains infrastructure and has a budget of R6.1 billion of which 71.8% was spent. The Health Professionals Training Development Grant budget is R2.9 billion and 72.4% was spent. The Human Papillomavirus Vaccine Grant, is for grade four learners. It is ranking the lowest expenditure at 65.6% because vaccination does not happen throughout the year. A new grant was implemented in 2019/20 known as the Human Resources Capacitation Grant - underspending in various provinces is due to delays in linking personnel to the grant. The highest is Limpopo with 85.7% and Gauteng at 78.2%. North West and Northern Cape are the lowest at around 25%.

Challenges
• HIV – Male Medical Circumcision expenditure is very low due to long process for payment of service providers
• HIV - Patients who are TB positive or have TB symptoms are not initiated on Anti-Retroviral Therapy prioritising TB treatment
• TB - Inadequate reporting from facilities especially hospitals and poor record-keeping
• Malaria - Underspending on the refurbishment of malaria stations, due to the delay in appointing an implementing agent.
• Malaria - delays in SCM processes with most items to purchase under the conditional grant categorised as prohibited such as IT equipment and catering
• Health Facility Revitalisation Grant - The process of filling their DORA posts for the Infrastructure Units still ongoing.
• Health Facility Revitalisation Grant - Delays in the processing of payments; delays in the awarding of contracts as well as the reprioritization of projects

Human Settlement Grants
This sector has four grants. The Human Settlements Development Grant (HSDG) which has the biggest allocation of R18.9 billion and 70.6% has been spent. The second one is the Informal Settlement Upgrading Programme Grant. The Emergency Housing Grant spends the lowest in this sector at 23.2% – it is tricky because it is used only when there are emergencies. The Title Deed Restoration Grant (TDRG) is not doing well even though title deeds are important for wealth generation and capture. There is quite a backlog in the issuing of title deeds. Spending has improved, Western Cape has spent 94% of the grant which is more than what was transferred to them for Quarter 3.

Challenges
• Title Deeds Restoration Grant – Delays in township establishment and proclamation and delays in the conveyancing process have led to poor performance in at the third quarter.
• Provinces transfer TDRG funds to municipalities to deliver but there seems to be no clear indication they are performing. Funds are in some cases transferred and left with the municipalities.
• Human Settlements Development Grant – Spending does not match the performance of outputs such as the number of sites delivered.
• There has been little progress in the informal settlements window within the HSDG.
• Human Settlements Development Grant – Performance against programs for which no targets were set is indicative of planning deficiency
• Human Settlements Development Grant – There is poor alignment between cash flow projections and business plan budget allocations.

Public Works Grants
Public works has the Expanded Public Work Programme Grant (EPWP) as a schedule 5 grant. EPWP is doing fairly well except for Limpopo.

Challenges
• Lack of adherence to EPWP guidelines by officials who are implementing projects that create a large number of work opportunities that end up not being reported.
• Delayed disbursement of tranches due to withholding for noncompliance with Division of Revenue Act.
• Some projects reported on the EPWP reporting system not aligned to the information provided on the submitted project list

Social Development Grants
This sector has one grant: Early Childhood Development (ECD) Grant for a specific purpose. There is progress as the Eastern Cape was underperforming but has improved and Northern Cape is at 42.1%.

Challenges
• Delays in signing service level agreements with service providers.
• The budget of a maximum of R180 000 per centre for maintenance still proves to be inadequate to address requirements. Province however have R650 000 to construct new centres.
• A number of centres need to be replaced as they are in a state of disrepair and present safety issues.

Sports Grants
This sector has one grant for a specific purpose: Mass Participation and Sport Development Grant. This has varying spending levels across provinces. The Northern Cape and Mpumalanga spent above 80%. The national training centre in the Free State was a challenge because of the land issue so they need to find another piece of land. North West spending was low.

Transport Grant
This sector has two grants under schedule 4. The grants have spent 69.2% of R18.1 billion. In aggregate Limpopo and North West have not done well due to non compliance and funding was withheld for the Provincial Road Maintenance Grant (PRMG). North West also has not been doing well. The department is trying to resolve some challenges. The Public Transport Operations Grant is for bus subsidies and is doing well except for Gauteng and Limpopo. Most of the provinces spent above 60%. PRMG had a budget of R11.8 billion and is doing fairly well.

Conclusion
• Overall spending at 69% is lagging a bit for the third quarter when compared to the amount transferred to provinces. Agriculture is the lowest sector.
• Cash flow management, which has been an issue in previous periods, is still an area of concern. As of the third quarter, provinces received R83.7 billion but only spent R75.9 billion, leaving R7.8 billion unspent in provincial bank accounts.
• Generally, provinces are still experiencing difficulties with SCM process, where delays impact negatively on performance.
• Non compliance with DoRA has been identified on certain grants, resulting in transfers being withheld.
• Requests for the conversion of the NHI Indirect Grant to the Health Facility Grant.
• Request for the HSDG to be stopped from three provinces and reallocated to four other provinces.

Discussion
Mr F Du Toit (FF+) said that the report should have been more detailed on the grants because most of their spending was not reflected in the presentation. To perform oversight effectively we will need details on the graphs. Underspending of these grants has been a trend for years now. Has Treasury held people accountable for not planning on spending the budget because this is detrimental to the economy? The education infrastructure grant is of concern because schools are overflowing with learners with 50 to 80 pupils per class and others cannot read and the lack of spending contributes to this. On hiring teachers from Cuba to assist, is there not joblessness in South Africa as it is? Are there not sufficient professionals to fill these posts? Why are professionals imported? Treasury is finalising a transversal contract that will delineate procurement challenges on a national level. He suggested the possibility exists that the needs of different municipal areas will not necessarily be met because equipment may be delivered to areas that do not need it. And are there skilled people to manage that equipment?

Mr Du Toit said the Title Deeds Restoration Grant on slide 20 is resulting in land grabs and land is a sensitive issue at this point. It seems that the government - by not taking responsibility and seeing that these grants are applied accordingly - are contributing to the chaos being experienced. It is not only illegal land grabs but also the service delivery protests that follow after that. This is detrimental to the economy. If you look at spending, North West is only spending 21.6% and that is one of the provinces with service delivery protests as a result of lack of infrastructure, no water supply and failure to give them title deeds. This is unacceptable and is a self-created problem. It is not something new. On slide 24 on ECD budget, which provinces are you referring to and how many ECD centres will be needed? Please provide more details on provincial road maintenance grant.

Mr M Moletsane (EFF) said that Treasury spoke of late payments to service providers and cited that forms are not correctly filled in. Do you not hold workshops for provinces so they know what is expected of them? How does the EPWP grant contribute because some towns are so dirty yet there are people appointed to clean. Do you monitor if the money goes where it ought to? People are appointed, towns are dirty, but the money has been spent. Do you do follow-ups on whether grants are correctly spent and accounted for?

Mr D Ryder (DA) said that he is disappointed at the presentation because it is a snapshot as of 31 December. What has been shown is what has been spent with no comparative figures from previous years for us to know if we are in line with previous performance or behind. If we are sitting with 60%, straight-line mathematics says we should be at 75% because it is the end of the third quarter. Most of the spending happens in the last quarter so is the institution on track to meet targets because that is not reflected in the presentation. There is no indication of commitments in place so the Committee can assess real performance. In terms of the MFMA and PFMA, you have a procurement cycle that you have to adhere to and there is no commitment to spend money yet there are only have three months left. The money will probably not be spent because there is a whole process of advertising, tender, appointment, delivery and payment and all that takes time. This is the first presentation on the subject matter, we do not know what the history is. There are many outliers to ECD spending, Northern Cape is the only one below 65%, is there a reason for it? Should the committee be engaging with the province so that they can respond?

Mr S Aucamp (DA) said the Northern Cape has been declared a drought disaster area. It is common knowledge that there is some money for drought relief. The government has given R300 billion of which R215 million went to municipalities for equipping boreholes and only R85 million went to farmers and emerging farmers for boreholes. None went to farmers for them to buy feed. What can be done about the Northern Cape being disastrous? What can the Premier do to procure more funds than what he is currently getting and are the funds available? Sometimes we use the word disaster too lightly. When Minister Didiza declared the area a disaster area, things should have happened –with the cooperation of those farmers – but that did not happen.

Mr J Mpisi (ANC) said the report lacked detail and was hard to follow. The third quarter is not good performance. There will be fiscal dumping in the next quarter and that creates a problem for all of us because people spend money for the sake of spending and will spend on things that were not budgeted for. Treasury must tell the Committee what kind of mechanisms they have to assist provinces in this matter. The other issue is what is the consequence management for lack of spending? Looking at the Comprehensive Agricultural Support Grant one finds that provinces do not perform optimally. On Education there are supply chain management challenges, but they are not elaborated on. Can you give the formula you used to get the percentage on slide 7. If you divide the spending by the receipt you do not get the same percentage as on the slide. Our calculations give 65% and not 45.3%.

Businesses are dying because departments are not paying within 30-days particularly on the school nutrition programme. What is the Treasury’s advice on that? Mr Mpisi said he went to the Deed’s Office in Johannesburg last week to assist his mother. She has been without a title deed for years and it took 45 minutes for him to get it for her. However, he sat there and observed while the staff relaxed and only started working when he introduced himself. They complain about capacity, but they do not work. There are no consequences. The land issue is very important.

Ms A Randall (DA) appreciated the presentation. Gauteng Legislature has just discussed third quarter performance yesterday and we can now compare what Treasury and the department had to say so it is a critical instrument that Members can use when going back to Gauteng. On a positive note, Gauteng appointed probity auditors for procurement and supply chain delays especially for smaller departments like Agriculture and Social Development which do not have the skills. There is a body shop in Gauteng with probity auditors. Last year they halted 27 projects after doing an audit on irregular and wasteful expenditure of billions of rands on those projects. We went back to the drawing board and followed the correct procedure.

Mr E Njandu (ANC) said that there is a general understanding across provinces that conditional grants come with conditions in terms of monitoring and evaluation to strengthen it from a Treasury perspective to avoid service delivery backlogs and funds not being spent. From an oversight perspective it is a concern that money is not being spent and communities are waiting for service delivery.

Ms B Badenhorst (EFF) said she had seen all the grants but did not see one on drug addiction for Social Development. Drug addiction is a social ill and people are dying but there is no grant for it.

Mr P Malema (ANC) asked what Treasury would recommend since it is aware of the mismatch between the grant budget and spending. EPWP is doing fairly well except for Limpopo, what does that mean? Will people be upskilled in the EPWP Since the Title Deed Grant is in its second year of underspending, what intervention do you have in place?

The Chairperson asked what the expected spending threshold per quarter is. Referring to a previous comment, he said that there need to be comparative trends so Members can make assessments because towards the end of the year spending booms or fiscal dumping occurs. Does good expenditure speak to good outcomes i.e. service delivery? Does it reflect on the ground because the intention is to give service delivery?

On consequence management, previously when money was not spent it was sent back to Treasury and this is not helpful. There should be discipline of officials because at the end of the day the community will still suffer, and we will still be failures. Do provinces have common challenges? On title deeds, political parties mention them during their campaigns but what is the problem? Why should 80-year olds wait years before getting a title deed? The laissez faire attitude is not working and the batho pele principle has fallen through the cracks.

It was difficult to interpret the graphs so next time have a slide that speaks to the graphs. The information you presented verbally is very important. The Chairperson noted the challenge of 30-day payments. She had been responsible for an infrastructure department where there were service providers. In Mpumalanga, there was a forum of CFOs and they agreed on 40 days, but it was also recognised that the problem arises when the invoices arrive. The main problem is corruption and rent seeking and that is killing small businesses. A person who gets a salary at the end of the month wants to be bribed by the service provider. The attitude is compromising this government and people are aware that there are no consequences, and all will be blamed on the politician.

Mr Du Toit said that everyone will go back to their provinces with this information. As a representative of North West, it would be ideal to speak to the Premier and MECs and bring this to their attention. There are time constraints, but Treasury does have information, so he requested a revised presentation by tomorrow.

Response
Ms Emmanuelle Gille Director: Technical Advisory Services at National Treasury responded that a comprehensive report, as well as a trends report, would be sent to the Committee the next day. Over the five years, overall spending has been 96-97% and after the end of the financial year, there normally is a 3-4% underspending. 

The quarter performance threshold depends on the grant. On the school nutrition grant, education grants generally show a trend of 25%, 50%, 75% then 100% on each quarter but it differs for every grant because for the infrastructure grant the first quarter is for planning and one will not see any spending. Generally, 70-75% spending is expected at the end of the third quarter.

There is a slight shortage in the type of teachers needed. There is a need for teachers for science and mathematics because they are gateway subjects and some teachers do not want to relocate to rural areas. That is why the department looks for Cuban teachers.

The title deeds restoration grant was part of the human settlement development grant but has been shifted to a conditional grant to address backlogs between 1994 and 31 March 2014 so it is not the recent one. Even with those, there are still challenges. Another reason for poor performance is that the beneficiaries sometimes cannot be reached.

ECD is for all provinces and it depends on the need of each province. The grant has two components. The subsidy component pays R15 per child per day and then there is a maintenance component for each centre to make centres conducive for learning at R180 000. There can be a deviation from this if approval is given. In the current year, R650 000 is made available for new centres if the centre is in disrepair and needs to be rebuilt. It can go up to R2.5 million per centre but that depends on transferring officers.

For monitoring, there is more than one stakeholder. The administrative department, which is a national department is responsible for departments to account to. They can use the Division of Revenue Act to enforce compliance. Each conditional grant has a framework concerning what can be done so it is very prescriptive. If it does not prescribe something, then it cannot be done. National Treasury has a role because the Act gives it authority if one wants to stop a grant or if there is something seriously wrong. There are also provincial treasuries that are responsible and can check if the money transferred to the province is actually needed by the department and can hold it back if it is not spent. There is a provincial legislature committee and they do important work. They called the Eastern Cape department three times and that worked because the Eastern Cape has improved. The Auditor General also plays an important role. Each provincial department is audited based on what the framework says; it is a legal document because it is gazetted.

Ms Gaarekwe responded that funds do get withheld when a province is not performing, and the province will be invited to cite why it is not performing and what measures it has put in place. When this fails, the grants are stopped but this is the last resort, but the funds are reallocated to provinces who perform better. If the non performing provinces fast track their performance, they get some of the money back. On transversal contracts, this works from the Office of the Chief Procurement Officer (OCPO) to ensure that all provinces can buy from this contract. The only thing to be done is to place orders and deliver services to people. On dirty towns, the EPWP is not like the Community Work Programme (CWP). There is a difference between ones that go to municipalities and ones that go to provinces. This one particularly relates to infrastructure delivery so it will not assist with dirty towns.

On what the Northern Cape Premier can do, there is a provincial disaster grant that has R130 million in the current financial year and it has not been spent. The province can apply. Once a disaster has been declared, COGTA and Agriculture can do an assessment and send it to the national department and then an assessor will be sent to evaluate the extent of the disaster. After that Treasury will be included to transfer funds based on what the assessor found.

On fiscal dumping, this has been ongoing for a while. It mostly happens when a grant is a transfer payment. In Human Settlements, one finds that they transfer to municipalities and housing development agencies. Provincial departments misuse items like transfer payments. Circular 21 on the classification of expenditure says that there have to be criteria met for spending to be a transfer. If someone implements on your behalf it should not be a transfer spending but be classified under goods and services.

On payment of service providers, that is a big issue. The Office of the Accountant General and OCPO are following up on the matter. At the end of the financial year one finds that there are invoices that have not been paid and have to be carried over and are called accruals and payables not recognised. It is a big problem in the system. This matter is prominent is Health and work is being done to combat it. Last year the departments accrued billions.

On spending corresponding with outputs, Treasury visits provinces and talks to farmers to get a sense of what support they get from provinces. The health facilities are visited to see how they are run and whether there is medicine and the likes and reports are written that go to the Budget Council.

On consequence management, the Division of Revenue Act is relied upon. The legislation does not grant Treasury power but gives it to executive authority. The first point of contact is the accounting officer.

On common challenges, agriculture and human settlement grants have a common problem.

Further questions
The Chairperson said that during her time in the bargaining council she thought getting Occupation Specific Dispensation (OSD) would be an achievement in addressing the matter of people not wanting to work in rural areas. Is the OSD not helping because when we bargained for it as we thought it would attract people?

Mr Mpisi said that he thought that rural allowance would be implemented to assist those that will be implementing government policies in any sector but that has not been properly communicated. The new generation of employees do not understand the importance of the OSD, and it was used to stop the influx from rural to urban, but it is not happening; hence the Cuban recruits. The rural communities do need assistance from professionals that can help them. On monitoring and evaluation, are these grants being monitored? Do they look at spending patterns of those grants? Some of the calculations on the presentation are wrong and we have been spending more than what is contained in the document. We also have challenges with local government. The timing difference in the financial year between us and municipalities is not good. If a grant is received from the national level and not immediately distributed to municipalities it is problematic because problems are not at the provincial level. How do you monitor it?

Mr Z Mkiva (ANC) asked if the PFMA creates a bureaucratic process between planning and implementation. He was in a meeting with various directors general and many were frustrated – so perhaps the PFMA needs to be revised because implementation is difficult. China built a hospital in ten days and comparison was made on social media that in South Africa that would take five to ten years. Perhaps a regime that allows planning and implementation to happen in a short period is needed.

He liked the grant idea because grants are helpful, but he is not sure if provinces can manage them. Can we not have a tool in every province to build capacity or learn from those who have mastered the game? The difference in meeting targets is vast and we should not be leaving others behind or transfer the problem. We need to apply our minds so that our decisions are progressive and not leave certain communities behind.

Mr Ryder said that it is amusing that Gauteng is giving input on rural support because there is a lack of information out there. On reallocation, he is not a fan of fiscal dumping, but he is a fan of incentivizing good work. On the PFMA he knows reallocation can be tricky – so when funds are reallocated are they lost by one province and gained by performing province or is it part of next year’s allocation? Is it a punitive measure?

This is an important presentation and goes to the heart of what this Select Committee should be doing, what is our plan on getting regular updates.

The Chairperson asked if these presentations are presented to MinMEC for the HODs and MECs.

Mr Njandu said that what the Chair raised is an important point. Can the Committee not have the provinces speak for themselves to get an understanding of their own experiences?

The Committee Secretary explained this meeting focused on the conditional grants to expose members to what should be done on monitoring conditional grants. The next step is that the Committee will decide on which grants to focus on. The Committee can interrogate the best performing and the least performing provinces and see what can be learned from the best performing province.

A Member suggested that the Committee invite the MEC, CFO and HOD of the department that the Committee is doing oversight on, so there is proper accountability on non-spending because they know that national is watching them.

Response
On MinMEC, Treasury has not done so because it has not been invited. For the Finance MinMEC, these presentations are done for the committee chaired by the Minister, looking at the aggregate spending on all provinces and not limiting it to conditional grants but capital expenditure as well.

The OSD was meant to attract and retain professionals within the public service. It has brought some results but there are certain areas were people are not going such as Namaqua. People do not go because of the language used. People consider a lot of things before they relocate. Thus there are other challenges so that even the incentives do not convince them.

Conditional grants are monitored and there are many stakeholders. Departments are met with quarterly and they submit the report that shows what money was spent on so the outputs versus the money spent are compared. Provinces submit a report on their performance.

On the graphs, the calculations are not necessarily wrong. The receipt is not the budget, it is what has been transferred to the department so that is why it does not align. In future, more information will be added.

The PFMA is a difficult one, planning is important. For example, for infrastructure, quite a lot of support has been provided for provincial departments to ensure that there are skills in the public service. On planning, capacity is needed so that people who do planning are not the same people who implement as well.

On reallocation, once funding is stopped, the province will have lost that allocation for that particular year, but this does not affect future allocation. Money is lost for that particular year.

The Chairperson said that there is something that Members have suggested about the reports. Previously the reports were available on the website so why has that stopped. Treasury should consider putting reports on your website again. Members will receive the requested information tomorrow.

Treasury must help us. Although the PFMA does not grant you many powers, we should not wait for problems to occur. We must do away with accruals. She did not know how frequently Treasury meet with provincial treasuries, but you must help them and analyse the budget and expenditure. All these problems need to be stopped. Previously we spoke on deviations from the budget and who approves, and we were told that some are approved by legislation and others by Treasury, so such things need your intervention to avoid these problems.

 Mr Ryder said that with the PFMA, Treasury must not forget the Committees are law making bodies. If there are issues with the law, raise them because we are a legislature.

Mr du Toit said about teachers not willing to relocate, perhaps they should speak to the Education Portfolio Committee about the OSD so teachers will feel that they are welcomed in the area.

Meeting adjourned.