1. KwaZulu-Natal Provincial Treasury “Be the Centre of Excellence in Fiscal and Financial Management in the Country” 1 KZN MEC for Finance and Economic Development Presentation to the Select Committee on Finance On 1 st Quarter Expenditure of 2008/09 26 August 2008

2. KwaZulu-Natal Provincial Treasury “Be the Centre of Excellence in Fiscal and Financial Management in the Country” 2 Presentation outline Analysis of 2008/09 first quarter: – Analysis of Personnel – Analysis of Non-Personnel – Analysis of Capital expenditure – Analysis of Conditional Grant expenditure Monitoring Mechanism within Provincial Treasury Conclusion

3. KwaZulu-Natal Provincial Treasury “Be the Centre of Excellence in Fiscal and Financial Management in the Country” 3 KZN Expenditure by Department It should be noted that the table above includes the approved provincial roll over of R33.491 million relating to Amafa and is reflected against the Office of the Premier.

4. KwaZulu-Natal Provincial Treasury “Be the Centre of Excellence in Fiscal and Financial Management in the Country” 4 KZN Expenditure by Economic Classification

5. KwaZulu-Natal Provincial Treasury “Be the Centre of Excellence in Fiscal and Financial Management in the Country” 5 Analysis  Summary In aggregate total expenditure at end of 1 st quarter of R12.8 billion or 25.1 per cent of main budget; Projected end of year over expenditure of R2.245 billion.

6. KwaZulu-Natal Provincial Treasury “Be the Centre of Excellence in Fiscal and Financial Management in the Country” 6 Analysis (2)  Personnel Expenditure at the end of 1 st quarter of R7.2 billion or 25.5 per cent of main budget; Projected end of year over expenditure of R2.337 billion; The high level of spending against Compensation of employees was mainly due to the Departments of Education and Health recording higher than anticipated expenditure resulting from implementation of the respective Occupational Specific Dispensation for these two sectors. A number of departments have also indicated that the agreed-to 10.5 per cent wage agreement, which exceeded the budgeted 7.1 per cent, was also placing pressure on the personnel budgets.

7. KwaZulu-Natal Provincial Treasury “Be the Centre of Excellence in Fiscal and Financial Management in the Country” 7 Analysis (3)  Non-Personnel Goods and services, Other and Transfers and subsidies largely on track with expenditure at approximately 25% after the end of the 1 st quarter; Projecting to be minimally over spent by year end; Capital Payments analysed in the following slides.

8. KwaZulu-Natal Provincial Treasury “Be the Centre of Excellence in Fiscal and Financial Management in the Country” 8 Capital Expenditure by Department

9. KwaZulu-Natal Provincial Treasury “Be the Centre of Excellence in Fiscal and Financial Management in the Country” 9 Actual & Projected Expenditure per Quarter

10. KwaZulu-Natal Provincial Treasury “Be the Centre of Excellence in Fiscal and Financial Management in the Country” 10 Analysis  Summary In aggregate total expenditure at end of 1 st quarter of R1.063 billion or 19.2 per cent of main budget; Projected end of year under expenditure of R175.1 million.

11. KwaZulu-Natal Provincial Treasury “Be the Centre of Excellence in Fiscal and Financial Management in the Country” 11 Analysis (2)  Education Expenditure of R124.6m or 9.9% of main budget; Despite low level first quarter expenditure, minimal projected end of year over expenditure of R2.7m; Further, department has indicated that correcting journal entry of R40m will be passed from maintenance to capital.  Health Expenditure of R185.2m or 14.8% of main budget; Projected under expenditure of R50m against Machinery and equipment mainly due to drive by department to reduce projected over expenditure by the department; Despite fairly low level of expenditure in first quarter, department is projecting to fully spend budget against Buildings and other fixed structures; Low level of expenditure in 1 st quarter relates to late submission of invoices by implementing agents.

12. KwaZulu-Natal Provincial Treasury “Be the Centre of Excellence in Fiscal and Financial Management in the Country” 12 Analysis (3)  Transport Largest capex budget representing 45.8% of provincial capex budget; Expenditure of R712m or 28.1% of budget; Similar spending trends to previous years which shows good spending levels; Projected under expenditure of R128.3m at year end against capex budget; This projected under expenditure results from the misclassfication emanating from SCOA toning. This will be corrected by journal entries.  Other Actual expenditure of R40.7m or 8.4% of the main budget; Low spending mainly in respect of Department of Agriculture and Environmental Affairs where invoices were received late from one of the implementing agents; Fairly minimal projected over expenditure of R546 thousand at year end.

13. KwaZulu-Natal Provincial Treasury “Be the Centre of Excellence in Fiscal and Financial Management in the Country” 13 Capital expenditure by economic classification

14. KwaZulu-Natal Provincial Treasury “Be the Centre of Excellence in Fiscal and Financial Management in the Country” 14 Analysis – Economic classification  Buildings & other fixed structures Spending fairly low at 17.8% at the end of the first quarter; Projected under expenditure is mainly in respect of Transport where correcting journal entries will be passed (SCOA Toning).  Machinery & equipment Spending on machinery & equipment on target at 25.8% of main budget at the end of the 1 st quarter; Projected under expenditure at year end resulting mainly from enforced savings by Health to reduce the department’s projected over expenditure.  Other Other is mainly for software and purchases of land; Spending largely on track at the end of the 1 st quarter at 21.2% of the main budget; The projected over expenditure is fairly minimal at R1.2m at year end and relates mainly to land purchased by Housing for construction of a head office complex in Pmb for which savings were identified in other areas and a virement will be processed.

15. KwaZulu-Natal Provincial Treasury “Be the Centre of Excellence in Fiscal and Financial Management in the Country” 15 Conditional Grants

16. KwaZulu-Natal Provincial Treasury “Be the Centre of Excellence in Fiscal and Financial Management in the Country” 16 Conditional Grant - Analysis Infrastructure Grant to Provinces not included since it forms part of Capex expenditure and i.t.o. DORA does not require separate reporting; Expenditure at less than 25% of budget at end of 1 st quarter on:- – Comprehensive Agric. Support Programme (CASP) – 3.1%; – Land Care Programme – 16.6%; – HIV and AIDS (life skills education) – 8.8%; – National School Nutrition Programme – 18.5%; – Comprehensive HIV and AIDS grant – 6.8%; – Forensic Pathology Services – 14.2%; – Health Professionals Training and Development – 1.7%; – Hospital Revitalisation – 3.0% – Integrated Housing and Human Settlement – 14.1%; – Devolution of property rate funds grant – 0.0%; – Community library services grant – 6.2%; and – Mass Sport & Recreation – 16.6%.

17. KwaZulu-Natal Provincial Treasury “Be the Centre of Excellence in Fiscal and Financial Management in the Country” 17 Agriculture – Conditional Grant Comprehensive Agricultural Support Programme – Spending low at only 3.1% of main budget; – Follows similar trends to previous years and is a concern to KZN Treasury; – Historically trends have shown that expenditure increases in latter part of year but does not catch up completely by year end; – Department has indicated that expenditure will improve once Food Security packs tender has been finalised (R44m) and once standing contracts for land reform projects are in place; – Projecting to fully spend budget by year end. Land Care Grant – Low spending at 16.6 % of budget, yet an improvement on prior year’s spending pattern; – Implementation often dependent on progress by Land Affairs; – Projecting to spend full budget.

18. KwaZulu-Natal Provincial Treasury “Be the Centre of Excellence in Fiscal and Financial Management in the Country” 18 Education – Conditional Grants FET Recapitalisation Grant – Spending on target; – Full amount received to date (R81.486 million) has been transferred to FET Colleges; – Department is projecting to fully spend the budget by year end; – Table below indicates the amounts actually spent by the colleges at the end of the 1 st quarter.

19. KwaZulu-Natal Provincial Treasury “Be the Centre of Excellence in Fiscal and Financial Management in the Country” 19 Education – Conditional Grants HIV and AIDS (Life Skills) – Low level of spending at 8.8% of budget; – Spending affected by delay in finalisation of tender relating to printing of life skills material; – Department is projecting to fully spend the budget by year end. National School Nutrition Programme Grant – Expenditure seems low compared to budget at 18.5% but department indicated that 1 st quarter projections were exceeded as a result of invoices from prior year being processed; – Department is projecting to fully spend the budget by year end.

20. KwaZulu-Natal Provincial Treasury “Be the Centre of Excellence in Fiscal and Financial Management in the Country” 20 Health - Conditional Grants Comprehensive HIV and AIDS – Low level of spending at 6.8% of budget; – Spending low due to delay in interface between BAS and MEDVAS; – Department projecting to fully spend the budget by year end. Forensic Pathology Services – Low spending at 14.2% of budget; – This grant historically has had low expenditure; – Department attributes 1 st quarter low expenditure to delays in receiving invoices from the Department of Works; – Four sites have been handed over to contractors in the 1 st quarter and expenditure is expected to improve over the next three quarters; – Department is projecting to fully spend the budget by year end.

21. KwaZulu-Natal Provincial Treasury “Be the Centre of Excellence in Fiscal and Financial Management in the Country” 21 Health Professional Training and Development – Low level of spending at 1.7% of budget; – Expenditure low due to journals not timeously passed to the grant; – The department is projecting to fully spend the budget by year end. Hospital Revitalisation Grant – Low level of spending at 3% of budget; – Department attributes this to late invoicing by one of its implementing agents; – The department is projecting to fully spend its budget by year end. National Tertiary Services Grant – Good level of spending at 33.6% of budget; – Department is projecting to fully spend its budget by year end. Health – Conditional Grant (2)

22. KwaZulu-Natal Provincial Treasury “Be the Centre of Excellence in Fiscal and Financial Management in the Country” 22 Bulk of the departmental budget relates to the Integrated Housing and Human Settlement Development Grant; Expenditure is low at 14.1% of budget; Level of spending lower than projected due to delays in payment of transfers to eThekwini for the Hostel Redevelopment programme; Level of spending is expected to improve in next three quarters and the department is projecting to fully spend its conditional grant budget by year end. Housing – Conditional Grant

23. KwaZulu-Natal Provincial Treasury “Be the Centre of Excellence in Fiscal and Financial Management in the Country” 23 Devolution of property rate funds grant – Department did not project to spend any funds in the first quarter; – Department is projecting to spend full conditional grant over remaining three quarters of the year. Works – Conditional Grant

24. KwaZulu-Natal Provincial Treasury “Be the Centre of Excellence in Fiscal and Financial Management in the Country” 24 Arts, Culture & Tourism – Conditional Grant Community library services grant – Low expenditure at 6.2% of budget; – Low level of spending can be attributed to delays in the purchase of books due to the implementation of a new book buying strategy, delays in the payment of consultants fees in respect of the Mbazwana library building project, as well as delays in the invoicing of connectivity costs by SITA; – Department is projecting to fully spend allocation by year end.

25. KwaZulu-Natal Provincial Treasury “Be the Centre of Excellence in Fiscal and Financial Management in the Country” 25 Sport and Recreation – Conditional Grant Mass Sport & Recreation – Expenditure at 16.6% of budget; – This is in line with historical trends, where expenditure in the beginning of the year is usually slow but picks up in the latter part of the year; – Department is projecting to fully spend allocation by year end.

26. KwaZulu-Natal Provincial Treasury “Be the Centre of Excellence in Fiscal and Financial Management in the Country” 26 KZN Treasury closely monitors and evaluates expenditure of provincial departments through:- – Monthly IYM report; and – Quarterly meetings between Head of Treasury, Senior Provincial and National Treasury Officials and Departments (HOD, CFO and Senior Line function officials). The main objectives of quarterly meetings is to: – Monitor performance; – Identify possible areas of risk. Quarterly reports submitted to:- – Provincial Executive Council; – KZN Portfolio Committee on Finance and Economic Development; and – National Treasury. Monitoring Mechanisms

27. KwaZulu-Natal Provincial Treasury “Be the Centre of Excellence in Fiscal and Financial Management in the Country” 27 Conclusion Capex expenditure at 19.2% marginally below the straight line benchmark for the quarter of 25 per cent ; – Suggests that provincial infrastructure planning and implementation is improving; – KZN Treasury working to improve the claims and payment process between Works and other implementing agents to ensure that payments are captured properly and on time on BAS. Most conditional grant spending needs to be improved through:- – More vigorous monitoring and reporting; – KZN Treasury is putting in place specific measures to improve the performance of conditional grants

28. KwaZulu-Natal Provincial Treasury “Be the Centre of Excellence in Fiscal and Financial Management in the Country” 28 THANK YOU!