29 August finance Department: Department of Finance North West Provincial Government Republic 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  Indicate the 2012/13 year-to-date provincial expenditure for the first quarter ended 30 June

3 33 finance Department: Department of Finance North West Provincial Government Republic of South Africa

 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 4

 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. 5

 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.  6

7 77 finance Department: Department of Finance North West Provincial Government Republic of South Africa

8 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 R billion.

 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 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. 9

10 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.

 The average provincial spending on Compensation of Employees is 97.54% or R14 billion of the allocated budget of R14.4 billion. 11  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.

12 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.

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

 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. 14

15 finance Department: Department of Finance North West Provincial Government Republic of South Africa

16 All the departments spent below the estimated 25 percent with the highest spending by the Provincial Legislature with percent and Human Settlements, Safety & Liaison (Human Settlement Branch) with percent. Lowest spending is registered in the Departments of Public Works, Roads & Transport with percent and Agriculture & Rural Development spending percent. The provincial expenditure as at 30 June 2012 is percent or R5.267 billion of the annual budget of R billion. The average spending of percent is a 0.90 percent decrease when compared to the same last year when the expenditure was percent or R5.125 billion against the allocated budget of R billion.

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

 The overall provincial spending on Compensation of Employees is percent or R3.533 billion of the allocated budget of R billion.  Highest spending is registered on Provincial Legislature with percent with lowest spending of 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. 18

19 The 2012/13 budget for conditional grants is R4.939 billion with the expenditure at percent or R806.8 million and summarized per department as follows: - The provincial spending on conditional grants averages percent, a decrease of 0.54 percent when compared to last year where expenditure was registered at percent. Departments of Human Settlements, Public Safety & Liaison spent the highest with percent, followed by Education & Training with 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.

20 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 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 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.

 The provincial expenditure as at 30 June 2012 is at 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 R 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 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. 21

 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  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. 22

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