2011/12 Outcomes and 1st quarter Expenditure performance for the

2012/13 MTEF for the Eastern Cape Provincial Administration

Presentation by the MEC for Planning & Finance to Select Committee on Finance -

29 AUGUST 2012

Province of the

EASTERN CAPE PROVINCIAL TREASURY

Table of Contents

• 2011/12 Allocations• 2011/12 Allocation per department• 2011/12 Expenditure per department spent less or more than

100% of budget;• 2012/13 Allocations• Departments with significant contribution towards under

expenditure in 1st quarter of 2012/13 MTEF• Measures to address challenges and Way forward

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2011/12 ALLOCATION• EC allocated to Provincial Departments R54.3 billion in 2011/12 financial

year of which:– R44.6 billion was from Equitable Share portion;– R8.8 billion was from Conditional Grant portion; and – R817 million was from revenue generated within the Province.

• The provincial own revenue collection has seen the province collecting own revenue of R817.3m against the Adjusted budget of R729.5m, which resulted in revenue over-collection of R87.8m.

• The bulk of the provincial own revenue is collected from the department of Transport in respect of motor vehicle licence fees; from Tax receipts (i.e. casino taxes, horse racing and liquor licence's) and from interest earned from cash balances available in the PRF.

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2011/12 EXPENDITURE PER DEPARTMENT

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Vote Adjusted Budget 2011/12

Actual Expenditure

2011/12

Variance Adjusted Budget

vs Actual Expenditure

Actual as % of Adjusted Budget

Vote 01 - Office of the Premier 403 880 400 819 3 061 99.2%

Vote 02 - Provincial Legislature 393 138 360 257 32 881 91.6%

Vote 03 - Department of Health 14 812 568 14 892 282 (79 714) 100.5%

Vote 04 - Department of Social Development and Special Programmes 1 711 206 1 691 850 19 356 98.9%Vote 05 - Department of Roads and Public Works 3 413 567 3 393 640 19 927 99.4%Vote 06 - Department of Basic Education 25 144 886 25 174 117 (29 231) 100.1%Vote 07 - Department of Local Government and Traditional Affairs 761 690 738 943 22 747 97.0%Vote 08 - Department of Rural Development and Agrarian Reform 1 532 976 1 484 433 48 543 96.8%Vote 09 - Department of Economic Development & Environmental Affairs 893 226 885 651 7 575 99.2%Vote 10 - Department of Transport 1 596 764 1 582 911 13 853 99.1%Vote 11 - Department of Human Settlements 2 615 469 2 143 154 472 315 81.9%Vote 12 - Provincial Treasury 302 526 283 987 18 539 93.9%Vote 14 - Department of Sport, Recreation, Arts & Culture 686 837 649 017 37 820 94.5%Vote 15 - Department of Safety & Liaison 58 387 57 980 407 99.3%TOTAL 54 327 120 53 739 041 588 079 99%

DEPARTMENTS THAT SPENT BELOW 95% AND ABOVE 100%

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Department

Adjusted Budget 2011/12 R'000

Actual Expenditure

2011/12 R'000

Variance: Adjusted

Budget vs Actual

Expenditur

Actual as % of

Adjusted Budget R'000

Health 14 812.5 14 892.2 (80) 101%Compensation of employees 9 183.7 9 480.5 (297) 103%Goods and Services 4 124.4 4 019.1 105 97%Capital Payments 1 265.2 1 068.1 197 84%

Education 25 144.8 25 174.1 (29) 100%Compensation of employees 19 991.3 20 344.3 (353) 102%Goods and Services 1 037.9 1 072.2 (34) 103%Capital Payments 1 384.1 977.0 407 71%

Human Settlement 2 615.4 2 143.1 472 82%Compensation of employees 170.4 170.2 0 100%Goods and Services 72.0 71.4 1 99%Transfers and Subsidies 2 369.4 1 897.4 472 80%Capital Payments 3.4 3.7 0 107%

Other 11 754.7 11 529.6 225 98%TOTAL 54 327 53 739 588 99.0%

DEPARTMENTS THAT SPENT BELOW 95% AND ABOVE 100% cont. Health• Over-expenditure in Health (R79.7 million) is a result of Cost of Employees cost pressures

due to the appointment of employees without a budget (R296.7 million); provincialisation of state aided hospitals; OSD carry through costs; and remnants of HROPT.

Education• Overall over-expenditure in Education (R29.2 mil) was a result of cost pressures on CoE

budget, because of the implementation of the Court Order re-instating temporary educators, non movement of additional educators, OSD carry through costs and remnants of HROPT.

• The budget Goods and Services was adjusted during the 2011/12 adjustment estimate process , in order to cater for the COE cost pressures experienced by Education during the period in question.

• The under expenditure on Capital Payments of 29% (R407.1 million) can be ascribed to poor infrastructure planning- delays in issuing works orders.

Human Settlements • Human Settlement’s R472 million (20%) under expenditure on the conditional grant is mainly

due to inadequate project management capacity; poor delivery capacity of contractors (poor worksmanship);the unavailability of land (poor screening of service providers before awarding tenders) and inadequate SCM capacity.

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2012/13 ALLOCATION• Eastern Cape Province was allocated R57 billion in 2012/13 MTEF of which:

– R46.9 billion was from the Equitable Share portion;– R 9.6 billion was from the Conditional Grant portion; and – R774 million was from Own Revenue sources.

• The provincial own revenue estimates decreases in 2012/13 from R817.3m to R774.5m, mainly due to DEDEAT that collected once-off licence fees in 2011/12 from the Board Walk Casino. The lower 2012/13 estimate also relates to the conservative estimate for interest earned by PT from the provincial revenue fund.

• From the allocated budget of R57 billion, a total amount of R14 billion was transferred to the Provincial Revenue Fund in the first quarter.

• There is an over collection on own receipts amounting to R25.8 mill from April till June due to Treasury over collecting on interest (R13.4 million) & over collection on Health on patient fees (R8.2 million).

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DEPARTMENTS THAT SIGNIFICANTLY CONTRIBUTED TOWARDS OVER/UNDER EXPENDITURE IN 1ST QUARTEROF 2012/13 MTEF

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Departments

2012/13 Budget R000'

Q1 projected spent

Q1 Actual Spending

Q1 Variance

Q1 projected spent

Q1 Actual Spending

Q1 Variance

Q1 projected spent

Q1 Actual Spending

Q1 Variance

Q1 projected spent

Q1 Actual Spending

Q1 Variance

Q1 projected spent

Q1 Actual Spending

Q1 Variance

Health 15 166.0 3 954.3 3 651.9 302.4 2 439.5 2 336.9 102.5 1 148.0 1 188.7 -40.7 214.7 104.1 110.6 152.1 22.07 130.0Education 26 288.0 7 041.6 6 079.7 961.9 5 283.2 4 888.2 395.0 411.2 189.1 222.1 1 188.7 928.0 260.7 158.4 74.4 84.0Human Settlements 2 574.5 393.8 304.6 89.2 47.3 44.1 3.3 17.5 17.6 -0.1 328.3 242.3 86.0 0.6 0.6 0.0DEADEAT 936.1 248.5 140.9 107.6 49.0 43.5 5.4 32.3 15.8 16.5 165.3 81.5 83.8 1.8 - 1.841Rural Development &Agr Reform 1 694.1 446.3 289.8 156.6 223.0 214.0 9.0 143.5 55.1 88.3 77.6 17.0 60.6 2.2 3.6 -1.4Other 50 958.6 2 145.0 1 922.7 222.4 933.5 868.1 65.3 714.3 674.8 39.5 210.4 157.6 52.8 286.8 221.9 64.9TOTAL 56 204.8 14 229.5 12 389.4 1 840.1 8 975.4 8 394.8 580.6 2 466.8 2 141.2 325.6 2 185.1 1 530.5 654.6 601.9 322.6 279.3

Capital PaymentsR'000

TransfersR'000

Goods and Services R'000

Cost of Employees R'000

Overall Q1 Expenditure 2012/13R'000

DEPARTMENTS WITH SIGNIFICANT CONTRIBUTION TOWARDS UNDER EXPENDITURE IN 1ST QUARTER

General Observations

• All departments under-spent on COE due to the non-payment of the budgeted 5,5 % increase in ICS(improvement in conditions of service) which was to be paid in April 2012, because the wage agreement was only signed in August 2012.

• It should be noted that the delay in payment of ICS in the main is a timing issue, as the delay will ultimately off set the under expenditure in CoE as soon as ICS arrears will be effected.

• The non-filling of critical vacant posts also contributed to the low spending on CoE.

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DEPARTMENTS WITH SIGNIFICANT CONTRIBUTION TOWARDS UNDER EXPENDITURE IN 1ST QUARTER (cont’)

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DEPARTMENT OF EDUCATION

•Education projected to pay ICS (R269 million) in April 2012, this delay partly contributed to the under expenditure of R394.9 million.

•The delay in renewing the contracts for Adult Basic Education and Training facilitators and Early childhood development practitioners led to under spending. This will be corrected in the second quarter.

•The remaining balance of R128 million is due to the delay in the appointment of the temporary teachers.

•It should be noted that the COE variance may be positive as at end of 1st quarter, however there are budget pressures looming on CoE expenditure, given the outcome of the High Court ruling to employment of all temporary teachers. The estimated shortfall for Education is approximately R375.8million if the department has to honour all its outstanding commitments for 2012/13 .

DEPARTMENTS WITH SIGNIFICANT CONTRIBUTION TOWARDS UNDER EXPENDITURE IN 1ST QUARTER (cont’)

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DEPARTMENT OF EDUCATION Cont.

• The LTSM purchases originally planned for in Quarter1 will only be paid in Quarter 2 resulting in an overall variance of R222.1 million. A decision has been taken to centralise the LTSM budget in the HO as part of the strategy to monitor spending on this item.

• The transfer and subsidy variance of R260. 7 million can be attributed to non transfer to SETA’s as well as public secondary schools (R119.9 million);public primary schools (R45.9 million); FET colleges (R94 million); early childhood development (R6.1 million) and Adult basic Education (R316). The bulk of the transfer has been paid in the month of July 2012.

• The variance of R84 million is due to continuation of 2011/12 infrastructure projects that were not de-committed and then recommitted per project on BAS, which resulted in delays in payments.

DEPARTMENTS WITH SIGNIFICANT CONTRIBUTION TOWARDS UNDER EXPENDITURE IN 1ST QUARTER (cont’)

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HEALTH

• R102.5 million CoE under-expenditure can be attributed to ICS arrears payments.

• The over expenditure of R40.6 million relates to settling of 2011/12

accruals as the department ran out of cash due to CoE pressures.

• The under-expenditure on capital assets relates to the non payment to contractors due to poor performance and the prolonged labour unrest at the St Patrick’s Hospital (i.e. casualty/OPD project) and the slow progress by the contractor at the Frontier Hospital.

DEPARTMENTS WITH SIGNIFICANT CONTRIBUTION TOWARDS UNDER EXPENDITURE IN 1ST QUARTER (cont)

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RURAL DEVELOPMENT

• Rural Development has under spent on goods and services due to delays in delivery of major items such as dipping materials; accruals that were less than projected and delays with SITA payments resulting from the late signing of the SLA.

• Transfers to the Rural Development Agency R60.6 million could not be effected due to late submission of supporting documentation; claimants not submitting the required information on time. The department confirmed that this would be rectified in the second quarter.

• The over-expenditure on Capital Payments of (R1.3) million can be ascribed the fact that the budget was loaded under goods and services instead of capital payments, which will be corrected during the adjustment estimate process.

DEPARTMENTS WITH SIGNIFICANT CONTRIBUTION TOWARDS UNDER EXPENDITURE IN 1ST QUARTER (cont)

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HUMAN SETTLEMENT• The under expenditure of R86 million under transfers is due to claims not being

processed on time, incorrect information submitted to NHBRC lists, delays in land purchasing negotiations, &poor performance by contractors due to financial instability as well as poor contract management at municipal level.

DEDEAT• Under expenditure of R83.8 million relates to the transfers that were not effected

to ECDC,IDZ, and COEGA.

• There area surpluses that they should surrender to the PRF.

DETAILED EXPENDITURE PER CONDITOINAL GRANT, 1ST QUARTER

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Condtional Grant Original budget 2012/13

Adjustment Adjusted Budget 2012/13

Actual Spending (Year to

Date)

Projections (To date till

End of Year)

Total estimated

actual (End of Year)

Over (-) / Under (+)

Actual spent as % of Original Budget

Total esitmated as

% of Original Budget

Agriculture: Comprehensiv e Agricultural Support Programme grant 195,198 - 195,198 21,631 131,928 153,559 41,639 11% 79%

Agriculture: Disaster Management 2,011 - 2,011 - 2,011 0% 0%

Agriculture: Ilima/Letsema Projects grant 42,000 - 42,000 1,448 37,380 38,828 3,172 3% 92%

Agriculture: Land Care Programme grant: Pov erty Relief and

Infrastructure Dev elopment 16,823 - 16,823 58 15,270 15,328 1,495 0% 91%

Arts and Culture: Community Library Serv ices grant 78,058 - 78,058 7,694 70,364 78,058 - 10% 100%

Basic Education: Dinaledi Schools grant 11,964 - 11,964 1,085 6,244 7,329 4,635 9% 61%

Basic Education: Education Infrastructure grant 883,403 - 883,403 67,080 744,413 811,493 71,910 8% 92%

Basic Education: HIV and Aids (Life Skills Education) grant 35,252 - 35,252 9,278 22,550 31,828 3,424 26% 90%

Basic Education: National School Nutrition Programme grant 903,644 - 903,644 236,986 673,210 910,196 (6,552) 26% 101%

Basic Education: Technical Secondary Schools Recapitalisation grant 30,000 - 30,000 694 23,632 24,326 5,674 2% 81%

Health: Comprehensiv e HIV and Aids grant 1,060,852 - 1,060,852 237,552 777,971 1,015,523 45,329 22% 96%

Nursing Colleges and Schools grant 14,660 - 14,660 - 14,660 0% 0%

Health: Health Infrastructure grant 258,862 - 258,862 18,853 189,930 208,783 50,079 7% 81%

Health: Health Professions Training and Dev elopment grant 178,730 - 178,730 6,023 127,027 133,050 45,680 3% 74%

Health: Hospital Rev italisation grant 402,678 - 402,678 46,295 283,054 329,349 73,329 11% 82%

Health: National Tertiary Serv ices grant 682,445 - 682,445 151,306 520,495 671,801 10,644 22% 98%

Health: National Health Insurance grant 11,500 - 11,500 1 8,626 8,627 2,873 0% 75%

Health: Nursing Colleges and Schools grant 14,660 - 14,660 460 14,660 15,120 (460) 3% 103%

Higher Education and Training: Further Education and Training

Colleges grant 688,593 - 688,593 59,668 517,432 577,100 111,493 9% 84%

Human Settlements: Human Settlements Dev elopment grant 2,200,006 - 2,200,006 242,312 1,972,472 2,214,784 (14,778) 11% 101%

Human Settlements: Housing Disaster Relief 92,853 - 92,853 - 92,853 0% 0%

Public Works: Dev olution of Property Rate Funds grant 200,825 - 200,825 14,121 160,755 174,876 25,949 7% 87%

Public Works: EPWP Integrated grant for Prov inces 60,333 - 60,333 628 59,669 60,297 36 1% 100%

Public Works: Social Sector EPWP Incentiv e grant for Prov inces 22,121 - 22,121 383 12,758 13,141 8,980 2% 59%

Sport and Recreation SA: Mass Sport and Recreation Participation

Programme grant 66,056 - 66,056 4,771 61,285 66,056 - 7% 100%

Transport: Prov incial Roads Maintenance grant 1,369,985 - 1,369,985 164,050 1,295,999 1,460,049 (90,064) 12% 107%

Transport: Public Transport Operations grant 174,466 - 174,466 28,377 146,090 174,467 (1) 16% 100%

TOTAL 9,697,978 - 9,697,978 1,320,754 7,873,214 9,193,968 504,010 14% 95%

CONDITIONAL GRANT EXPENDITURE, 1st QUARTER CONDITIONAL GRANT EXPENDITURE, 1st QUARTER

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• Most conditional grants spending is behind compared to the planned spending. This can be seen in overall projected under spending for the conditional grants amounting to R504 million the reasons are as follows:

• Higher Education and Training FET grant funding amounting to R94.5 million due to delays in approval of the submission for transfer of funds to the schools and FET colleges because of challenges with change in leadership with the HoD.

• Hospital Revitalization grant amounts to R73.3 million due to contractors not performing as planned.

• Education Infrastructure Grant amounts to R71.9 million because infrastructure had not been committed per project and this resulted in payments not being made per project.

• Health Infrastructure Grant accounts for R50.0 million due to contractors not performing as planned and the Department has not submitted SBD (SCM-bid document) forms, tax clearance forms and correct banking details for Roads and Public Works to process outstanding work orders worth R44.7 million.

• Comprehensive Agriculture Support Programme amounts to R41.6 million due to delays in tender processes for the respective projects within the department.

MEASURES TO ADDRESS CHALLENGES ON INFRASTRUCTURE MEASURES TO ADDRESS CHALLENGES ON INFRASTRUCTURE

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• The utilization of Inter-Departmental Accounting (IDA) will be effected from August 2012 and the utilization of IDA will be the direct transfer of funds to DRPW in order to pay Implementing Agents and Service Providers to fast track the issuing of works orders and payments.o This will minimize interest expenses resulting from the delayed payments as well as

curbing the tendency of contractors leaving site.

• Capacity building in the CPMU is at an advanced stage in strengthening the Unit to support DRPW when intervening with the departments.

• DRPW should strengthen the support of the CPMU to improve the infrastructure delivery in all Departments including Human Settlements.

• Provincial Treasury has made provision for dedicated Infrastructure runs on Tuesdays in addition to the Friday runs.

CONCLUSION AND WAY FORWARDCONCLUSION AND WAY FORWARD• Provincial Treasury is continuously engaging departments on poor

planning of cash flow projections that results into gross under spending on conditional grants by the province.

• Provincial Treasury continuously prepares reports to monitor expenditure. These reports are shared with the departments and one on one sessions are held with the respective Programme Managers that have limited capacity to spend.

• Accounting Officers in departments were requested to implement remedial steps (recovery plans) in place to improve the spending of conditional grants and adjust cash flow projections before funds are withheld or delayed by National Treasury.

• Treasury is in the process of issuing financial pledges to all Departments’ CFOs, HoD’s & MECs with a view to strengthen the financial accountability model.

• Letters have also been written to the infrastructure departments in line with the Accountability Model, to escalate the challenges.

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CONCLUSION AND WAY FORWARDCONCLUSION AND WAY FORWARD• Departments like Health and Education that are experiencing cost

pressures; were requested to implement reprioritisation and cost cutting measures.

• Provincial Treasury centralized the Persal function on the authorization of appointment of staff in Education and Health.

• Provincial Treasury allocated additional budget for the recruitment of staff for the Provincial Coordinating Monitoring Team (PCMT) that will assist Infrastructure Departments to improve infrastructure delivery. It should be noted that there is a lead time between assuming duty and it showing improvement in spending.

• Short Term Measures- Housing: As an immediate stop gap, the projects for housing were consolidated as a single process incorporating 12 projects of approximately 1000 units a piece. Department of Housing worked very close with the Provincial Treasury to develop a number of innovative risk mitigating tactics in the projects to ensure meeting time lines and mitigating quality risks.

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CONCLUSION AND WAY FORWARDCONCLUSION AND WAY FORWARD• Project Management: The 12K project is a turnkey project that will limit

the pressure on the Department’s capacity constraints.• Medium term intervention for Housing• Provincial Treasury is working very close with the department’s SCMO;

the department’s FMCMM (Financial Management Capability Maturity Model), AIP (Audit Improvement Plans) & Procurement Plans is closely monitored to allow PT to identify areas of concern, at the same time assisting the department developing the improvement plans and closely monitoring and escalating any failure to meet milestone.

• Project Management: Although the SCMO does not directly support the department in terms of the project management efforts, the SCMO is involved in helping the department to develop a comprehensive PMO (Project Management Offices) plan, with a view to link the procurement planning cycle to the PMO.

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