PRESENTATION TO THE STANDING COMMITTEE ON APPROPRIATION EXPENDITURE REPORT AS AT THE END OF 3RD QUARTER (31 DECEMBER 2011)

OVERVIEW OF THE PRESENTATION 1. Introduction 2. Departmental Expenditure Analysis per Programme 3. Departmental Expenditure per Economic Classification 4. Analysis of the under expenditure for 2011/12 Financial Year per economic classification 5. Measures to improve expenditure 6. Conclusion

1. INTRODUCTION The purpose of the presentation is to brief Standing Committee on Appropriations on the Departmental Financial Expenditure including measures put in-place to improve expenditure trends.

2. Departmental Expenditure Analysis per Programme COGTA AENE Budget 2011 Expenditure 31 Dec 11 (R’000) Available Budget Actual Spending as % 1. Administration 205 369 134 202 71 167 65.3% 2.Policy, Research and Knowledge Mang Support 41 506 24 498 17 008 59.0% 3. Governance and Intergovernmental Relations 28 217 14 903 13 314 52.8% 4. National Disaster Management Centre 41 232 22 907 18 325 55.6% 5. Provincial and Municipal Government Systems 29 651 22 685 6 966 76.5% 6. Infrastructure & Economic Development 42 293 16 032 26 261 37.9% 7.Traditional Affairs 83 769 60 971 22 798 72.8% Total 472 037 296 198 175 839 62.7% Transfers and subsidies   South African Local Government Association 25 486 19 114 6 372 75.0% Municipal Demarcation Board 38 482 28 881 9 601 75.1% South African Cities Network 5 282 3 521 1 761 66.7% Community Work Programme 653 499 455 611 197 888 69.7% UCLGA 4 882 434 4 448 8.9% Local Government Equitable Share 34 107 901 23 326 938 10 780 963 68.4% Municipal Infrastructure Grant 11 443 505 7 178 079 4 265 426 Municipal Disaster Relief Grant 775 000 - 0.0% Municipal Systems Improvement Grant 220 210 205 700 14 510 93.4% Councillor once-off Gratuity 266 317 Special Purpose Vehicle (MISA) 192 061 104 964 87 097 54.7% 47 732 625 31 323 242 16 409 383 65.6% Grand Total 48 204 662 31 619 440 16 585 222

3. Departmental per Economic Classification COGTA AENE Budget 2011 Expenditure 31 Dec 11 (R’000) Available Budget Actual Spending as % Economic Classification   Current expenditure 727 914 449 279 278 635 61.72% Of which: - Compensation of employees 248 809 173 598 75 211 69.77% Goods and Services 478 605 275 278 203 327 57.52% Payments for financial assets 500 403 97 80.60% Transfers and subsidies 47 456 969 31 165 598 16 291 371 65.67% Provinces and municipalities 46 546 716 30 710 757 15 835 959 65.98% Departmental agencies and accounts 86 346 64 628 21 718 74.85% Public corporations and private enterprises 153 649 95 327 58 322 62.04% Non profit institutions 10 164 3 955 6 209 38.91% Households 660 094 290 931 369 163 44.07% Payments for capital assets 19 779 4 563 15 216 23.07% Machinery and equipment 18 019 13 456 25.32% Software and other intangible assets 1 760 0.00% Grand Total 48 204 662 31 619 440 16 585 222 65.59%

4. ANALYSIS OF THE UNDER EXPENDITURE 4.1. Overall Expenditure: The departmental overall expenditure performance depicted 65.5% spending and a standard norm is projected at 75% which reflects 10% under spending. This is largely due to transfers to municipalities that are not transferred every month, but according to payment schedules which the norm is not applicable. Therefore, according to our projected cash flow, transfers are in line with the payment schedule at 65.6% while Disaster Relief is at 0% due to outstanding assessments reports.

4.2 Compensation of employees: Allocation: R248 809 Actual expenditure R173 598 Variance R75 211 % Spent 69.7% The department was able to spend 69.7% of its budget allocation as at the end of the 3rd quarter, the under expenditure was due to vacant posts that were filled late in the year such as posts within NDMC, MISA and CWP.

4.3. Goods and services: Allocation: R478 605 Actual expenditure R275 278 Variance R203 327 % Spent 57.5% Our spending on goods & services reflects 17.5% under-spending. The under-spending is due to projects that were either withheld or deferred to the next financial year. During the Adjusted Estimates of National Expenditure (AENE) funds to the value of R17 million were set aside to implement the establishment of cooperatives through SANACO. The process to renew the contract was only adjudicated in February 2012

4.4 Payments of Capital Assets: Allocation: R19 779 Actual expenditure R 4 563 Variance R15 216 % Spent 23.1% The department spending reflects an under spending of 51.9%. This is due to R5.6 million within CWP that is not spent due to the implementing agents being appointed late in the financial year, where the older ones did not want to invest in capital towards the end of their term. The other allocation is on office furniture and office equipment not procured or delayed as the department is busy trying to acquire office accommodation for TSU.

4.5. Transfers and subsidies: The following Transfers have been paid according to the payment schedule after the institutions have fulfilled all the conditions and requirements for the transfers: Municipal Infrastructure Grant 62.7% Municipal Improvement System Grant 93.4% South African LG Association 75.0% Municipal Demarcation Board 75.1% CRL Commission 75.1% South African Cities Network 66.7% Community Works Program The program is currently at 69.7% spending; The program is divided into two categories: 10% on Program management (R65.3 mil) and 90% (R588.1 mil) site costs, but the 10% on Program management was reduced to R15.6 million to increase an allocation on site costs to R637.8 mil. The under spending is due to late receipt of invoices from service providers.

Transfers and subsidies continue: The following Transfers are indicating symptoms of under spending: LG Equitable Share = 68.4% The LG Equitable Share currently reflects an under-spending of 68.4% whereby National Treasury has indicated an intention to withhold R949 million for non performance of municipalities on other conditional grants in the previous financial years. Councillor once-off Gratuity = 0% The process of gazetting, verification of councillors, Tax directive etc took too long to complete. The process was intensified during the 4th quarter of the financial year and there is tangible progress registered United Cities of LG in Africa = 8.9% Transfers to UCLGA have been suspended pending discussions between the department and the entity on how to disburse this allocation in future.

Transfers and subsidies continue: The following Transfers also indicates symptoms of under spending : Municipal Infrastructure Support Agency = 54.7% The Department signed a contract with Development Bank of Southern Africa (DBSA). The contract entails that most of the procurement processes would be done by DBSA. And the department is invoiced after work is completed. The late billing by DBSA is the reason for the under spending. Municipal Disaster Relief = 0% The NDMC has over the period played an active part in assisting the Provinces to process their applications to ensure that the immediate relief funding is processed within the shortest possible period.This is due to assessments processes that took too long to complete. The department and the National Treasury are currently working on best way that can make funds distributed speedily and appropriately in the current financial year.

5. MEASURES TO IMPROVE EXPENDITURE Budget Committee: The Budget Committee will serve as an advisory committee to management in reference to their respective responsibilities for the preparation, adoption, administration and monitoring of the budget. The budget committee will mainly be concerned with the overall financial planning and management issues including assessment of the way the department will be operating and a focused attention on performance against budget and service delivery plans.

MEASURES TO IMPROVE EXPENDITURE cont Project management approach: The project management approach has been enforced at the level of the budget process thereby linking the budget to performance management. All approved projects have been allocated budgets linked to the various milestones. This will ensure that expenditure movement is in accordance with the projections. Approved procurement plan: A procurement plan has been developed linked to the project management model, the timeframes for projects are synchronised with the procurement requirements to ensure that the service providers are in place when required. The approval of the procurement plan early in the financial year will ensure timeously procurement as well as consistent monitoring at executive management level. Forward Planning Concept: The department has committed itself to this concept for all its operations and procurement processes.

6. CONCLUSION 1. Improvement plans were implemented with success. 2. Interim expenditure as at 31st March 2012 stood as follows (R2 billion under expenditure, R1,947 billion of which is transfers and subsidies) 2.1 Transfers and Subsidies - 97% 2.2 Compensation of employees-96% 2.3 Good and Services – 91% 2.4 Capex – 42%

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