1. National Treasury Monitoring of Conditional Grants

2. Introduction The Division of Revenue Act broadly provides for two types of allocations to provinces and municipalities: –Unconditional allocations (The Equitable Share); and –Purpose-specific allocations (Conditional Grants) Also included are clauses, which outline the process around funds transfers, management of reporting requirements, and various duties of transferring officers (national departments) and receiving officers (provinces and municipalities) with respect to conditional grants (CGs) The April Gazette provides for frameworks, including conditions, conditional grants (this is published 14 days after passage of Division of Revenue Act) The Division of Revenue Act and the Gazette must be read together with the 2010 Budget Review, in particular annexure W1, which is the explanatory memorandum, and provides details of: –Recommendations of the Finance & Fiscal Commission (FFC) and National Treasury’s response thereto; –Policy issues informing the allocations; –Details of the mechanisms used (e.g. allocation criteria) to determine allocations.

3. Duties of National Departments These include: –Determining the allocation criteria for the relevant grant –Drafting the spending and management of conditions for each grant programme –Managing the Business plans or Project plans for the relevant grant –Certifying compliance with various requirements of the Division of Revenue Act –Complying with the payment schedule –Implementing a uniform performance monitoring system –Monitoring implementation of the grant –Reporting on performance and expenditure to National Treasury and Parliament in a manner consistent with the PFMA and MFMA –Accounting for each grant within AFS and Annual Reports in a manner consistent with the PFMA and MFMA

4. Duties of provincial departments and municipalities These include: –Meeting the conditions stipulated in the relevant Government Gazette –Proper management and ring-fencing of funds and spending (this requires good cash management by CFOs) –In the case of further transfers to municipalities, provinces must establish a payment schedule with that municipality –Reporting to national department on expenditure and performance –Reporting on expenditure and projections to National Treasury via the Provincial Treasury, or national departments in the case of municipalities –Reporting on CGs within the AFS and Annual Report

5. Duties of Provincial Treasuries (Section 29) Gazette provincial allocations no later than 14 April 2010: –To municipalities, schools and public entities –The budget of each hospital in the province Report in terms of section 32 of the PFMA on transfers on a monthly basis: – Transfers received; – Actual expenditure on allocations (excl. schedule 4); – Any transfers from province to municipalities and actual spending by municipalities Manage the implementation of the payment schedule within the province.

6. National Treasury monitoring of Conditional Grants Ensuring that the payment schedule is adhered to by national departments (Any changes to drawings/ payment schedules are approved by National Treasury); Ensuring that business and project plans required for applicable grants are submitted annually; National departments submit monthly expenditure reports and these are verified against section 40 PFMA reports (IYM) from provinces and BAS downloads; In the case of municipalities, verification of monthly reports is done in terms of section 71 MFMA reports; Performance reports (non-financial) submitted to National Treasury on a quarterly basis; After each quarter National Treasury meets with each national department to discuss quarterly and monthly reports, address challenges and propose solutions; National departments submit annual evaluation reports to the National Treasury and discussions are scheduled to discuss the outcomes of each evaluation. National Treasury hosts annual Conditional Grant workshops for all provinces and national departments (per sector)

7. Actions taken to address legal non- compliance and poor expenditure (provinces) In every instance of non-compliance with the Division of Revenue Act, notice is given to the relevant accounting officer and the relevant province. Where action is not taken to address challenges, the following actions are mandated by the Act: –Withholding of funds; –Permanently stopping the transfer of funds; –Re-allocating unspent funds to another province within the same programme; –Informing the Auditor-General of instances of financial misconduct. The above actions are taken only after an extensive consultation process with the affected parties and with due consideration for budget and cash implications. Departments that have been affected in this respect during 2009/10 are: –Health (stopping of unspent Hospital Revitalisation funds to Mpumalanga) –Transport (re-allocation of PTOG unspent funds from KZN to North-West) –Agriculture (withholding of CASP funds for 30 days from Mpumalanga due to non-compliance with the Act) –Education (withholding of school nutrition funds from Eastern Cape, Free State and KZN for 30 days due to non-compliance with the Act) In addition, provinces who have not fully spent their conditional allocations must surrender unspent funds to the National Revenue Fund (unless these are committed). National Treasury facilitates the surrender process.

8. Actions taken to address legal non- compliance and poor expenditure (municipalities) In every instance of non-compliance with the Division of Revenue Act, notice is given to the relevant accounting officer and the relevant province. Where action is not taken to address challenges, the following actions are mandated by the Act: –Withholding of funds; –Permanently stopping the transfer of funds; –Re-allocating unspent funds to another province within the same programme; –Informing the Auditor-General of instances of financial misconduct. –Invoked section 28 of DoRA for the first time. The above actions are taken only after an extensive consultation process with the affected parties and with due consideration for budget and cash implications. Instances where action has been taken to address non-compliance (2009/10: –COGTA (MIG funds withheld as a result of slow take-up of projects by municipalities) –Energy (Electrification funds re-allocated between a number of municipalities due to poor spending) –Treasury (NDPG funds re-allocated between municipalities due to poor spending) As is the case with provinces, unspent funds that are not committed must be surrendered to the National Revenue Fund

9. Important issues to consider Provincial executive authorities (political leadership) should be well-briefed on the conditions of national grants so as to avoid provincial-specific decisions that violate the national policy objectives of the grant. Good cash management is a key aspect of ensuring compliance with the Division of Revenue Act. There needs to be strong co-ordination between grant administrators and CFOs within provincial departments. Expenditure reporting on CGs signed-off by provincial CFOs is at times inaccurate and of poor quality (National Treasury establishes accuracy through the afore-mentioned verification processes). Provincial Treasuries are responsible for implementing the payment schedule in their respective provinces.

10. THANK YOU 10