Exploring the Pattern of Expenditure in Government Departments
By Nontlantla Skenjana
In the midst of service-delivery riots, dissatisfaction among civil servants and many other pressures, it is common to hear that there are insufficient resources to deliver the desired services or to meet the demands of the personnel. This is in spite of disappointing reports of departments taking money back to Treasury at the end of each financial year - monies meant to facilitate the delivery of the very same services whose nonexistence elicits violent protests! This paper seeks to explore the patterns of expenditure in government departments and identify areas for intervention by the officials.
Cloete (1995:39) argues that it would be inappropriate to break the relationship between the budget and service delivery. He further argues that once government appropriates resources that are insufficient, it is tantamount to a breakdown in service delivery. This argument thus agrees with the common theory that funds not spent equal to service delivery denied. Civil activists even go further to say that service delivery delayed is equal to service delivery denied. This argument arises from the fact that access to basic services is a right enshrined in the constitution and thus it is justice. The acceptable percentage of under-spending in accounting processes is 2%, however this allowable percentage may amount to millions that have a potential to improve the lives of the poor.
The Public Financial Management Act (PFMA) provides the official legislative mandate for all financial matters with its responsibilities outlined in Chapter 13 of the Constitution. The key words that arise in its main objective include regulate, efficiency, effectiveness and provide responsibilities (Republic of South Africa: 1999). It drives the regulation of public finance management and reporting in an inseparable relationship with the strategic planning, performance review and reporting frameworks. It establishes the process that should be followed throughout the financial or budget cycle from the multi-year budgeting system, standard chart of accounts, monthly in-year monitoring, performance monitoring, expenditure and revenue management and reporting. These regulatory measures are in agreement with the International Standards set by the Public Sector Commission and the International Auditing Standards.
These reforms in the public sector seek to ensure that there is financial accountability between government and the social citizens. Accountability in this context relates to ensuring that resources are managed efficiently and they effectively respond to needs that have been highlighted through a public participatory process whether through stakeholder engagements or the election process. Because of the history of the country, the inequality between citizens becomes a glaring service delivery challenge. While the minority that has access to services has been vocal when services are poor to the extent where in some communities they withhold rates, there are destitute communities which are continuously victims of backlogs in the provision of housing and suffer poor service delivery in health and education and hence reference will be made to these three departments.
Nationally, the performance of departments has shown significant improvements when analysing reports from 2007 to 2009. This can be attributed to the strict standards being enforced through SCOPA, but also the conditions that are upheld by national departments in issuing conditional grants to provinces and municipalities through Transfers and Subsidies. National Departments are the policy drivers, providing the necessary support and having oversight over provinces and municipalities on service delivery issues. Although they are not directly responsible for infrastructure delivery, they divert their resources through grants, subsidies, transfers and their public entities and as a result incur limited expenditure on capital assets. However, in the 2007/08 financial year, the Department of Public Works recorded the highest levels of under expenditure at 9.8%; although the following year, the Department of Water Affairs registered a significant 7.2%.
In the year 2007/08, the Department of Housing recorded an under expenditure of 4.4% equivalent to R395.6 million, which decreased in 2008/09 to 0.1%, while the Department of Health has consistently under spent more than R300 million in both periods at an average of 2.45%. In both periods, the Department of Housing drastically increased their communications budget relating to a media campaign around Breaking New Grounds. This resulted in virements and shifting of funds between the programmes and expenditure items with the Rental and People’s Housing Process Programme losing out on R 20 billion. With the high levels of dissatisfaction regarding RDP housing and the social unrest related to housing delivery, it is a concern that substantial resources were diverted to media campaigns of doubtful importance.
The Department of Education has been able to stay below the threshold of under-spending at an average of less than 1%. However, the biggest allocations from the department were subsidies to higher education institutions, the National Student Financial Aid Scheme and the National School Nutrition Programme (NSNP). This is one of the Departments that have continuously under-spent on compensation of employees, which was attributed to high staff turnover and the inability of the department to fill vacant positions that are funded. A significant portion of the department’s mandate rests on human capital and the monitoring and evaluation of interventions which is a serious service delivery challenge. The highest under-spending in the department is related to Systems Planning and Monitoring at 41.5%, however, the department claimed that this was attributed to delays in implementation of programmes, lengthy consultation processes and suppliers submitting invoices late. However, it should be noted that the same programme made a virement at the adjustment budget to other programmes and that the Department has also been rolling over funds for reasons similar to those of its counterparts.
Provincially, the performance of Departments is much more worrisome in that, according to the Auditor General’s reports, only a few departments had unqualified reports. The Department of Housing in year 2007/08 received a qualified report while the Department of Education and the Department of Health had an adverse opinion. In expenditure, the Department of Health made a number of virements while the department also requested large rollovers to the following financial year. This also continued in the following year, although there was less shifting of funds and virements. The capital expenditure on the General Hospitals Programme was under-spent by 20%, while in the Provincial Hospital Services programme only 33% of the funds allocated were spent in Machinery and equipment. The District Health Services also released significant portions of its capital assets budget through virements. These two programmes are core programmes in the department. This under-expenditure is also reflected at national level; it is argued that it is a result of challenges around the Hospital Revitalisation Programme and some technical challenges on the purchase of machinery and equipment.
It has been argued that the inability of Departments to spend their budgets is a reflection of capacity issues and the lack of political will within the Departments (Cosatu: 2007). Majoe argues that poor planning and a lack of technical skills is the reason for under-spending in departments. These arguments may be true in view of the findings of the Auditor General in the provincial Departments. It seems in all three Departments (Housing, Health and Education) there are serious challenges in recording financial information and in keeping organisational documentation. With specific reference to the Department of Education, the Auditor General is critical of the internal controls being exercised in the Department, the lack of a paper trail, misallocation between accounts of expenditure and high under expenditure on Transfers and Subsidies and capital expenditure. This impairs the performance of the Department and leads to unreliable decision-making and poor service delivery. Similar concerns have also been observed in the Department of Health, but including significant flaws in procurement processes, overstating of capital expenditure and understating of under-expenditure, the duplication of payments to service providers and overpayments to old staff members.
This analysis shows a complexity of the internal problems that may contribute to the low service delivery levels. It is clear that there is a gap in the planning processes that may be partly attributed to the multi-year incremental budgeting approach where officials do not necessarily engage in an activity-based budgeting process thereby avoiding allocating resources to items, sub-programmes or programmes that will not be able to use them leading to the need for transferring funds across.
The consistently high levels of roll-overs, virements and shifting of funds, shows that more could be done in aligning the budget to the operational plans at planning phase. The above mechanisms have become an operational activity whilst they were designed to be interventions in cases where unforeseen circumstances arose during a given financial year. The continuous rolling over of funds creates a precedence of delayed service delivery that cannot be attributed to scarcity of resources and thus an unfair disservice to the poor.
There seems to be a need to improve the technical skills of finance personnel in carrying out their activities and also in understanding the auditing processes. It is unacceptable that service providers are paid twice for the same service and this reflects a weakness in the payment systems. Whether this is a result of human error or an override of controls, it needs to be sorted out. Procurement is a crucial and sensitive area in government with progressive legislation guiding all processes. However, the consistency of unauthorised expenditure shows the weaknesses of the control environment. There are cases where officials are going beyond their delegated authority in approving payments or appointment of service providers. The use of section 16 of the PFMA (procurement in emergency cases) may be another cause for the unauthorised expenditure and perhaps departments need to define emergency at departmental context. The presence of irregular expenditure confirms the lack of political will to comply with applicable legislation. This contributes to the flawed procurement processes, which at times cannot be stopped because of political interference.
These weaknesses are detrimental to service delivery, especially in provinces like the Eastern Cape whose population is very poor and rural. It thus calls for serious activism within civil society in the arena of advocacy to promote accountability, transparency and ensure that the required services are delivered to the public. It is also up to the public service to be empowered through technical training to support the knowledge-based training provided by government departments. There also needs to be a way of enforcing responsibility in the financial management personnel. However, there is a great need for political leadership and guidance in public sector activities. Perhaps the suggestion to give greater powers to the Auditor General and Standing Committee on Public Accounts will go a long way in restoring public confidence in the public finance management system.
References
1. Auditor General. 2010. PFMA General Reports. www.agsa.co.za. Accessed on 20 November 2010
2. Cloete, J.J.N. 1994. Public Administration and Management. JL van Schaik Publishers. Pretoria
3. Eastern Cape Department of Health. Annual Reports. www.doh.ecprov.gov.za . Accessed on 10-23 November 2010
4. Eastern Cape Department of Housing (Human Settlements). Annual Report 2008/09. Accessed on 10-23 November 2010 http://echousing.ecprov.gov.za/modules/documents/Annual%20Report%202008_09.pdf
5. Nachi Majoe: Friedrich Naumann Foundation for Liberty, http://www.eumunicipaloutreach.org.za/
6. Republic of South Africa. 1996. The Constitution. Government Printers. South Africa
7. Republic of South Africa. 1999. Public Finance Management Act. www.treasury.gov.za. Accessed on 14 November 2010.
8. Republic of South Africa. Departmental Annual Reports. www.info.gov.za. Accessed on 10-23 November 2010
a. Department of Housing Annual Report 2007/08
b. Department of Health Annual Report 2007/08
c. Department of Education Annual Report 2007/08
d. Department of Housing Annual Report 2008/09
e. Department of Health Annual Report 2008/09
f. Department of Education Annual Report 2008/09
9. Articles:
a. http://apha.confex.com/apha/129am/techprogram/paper_30183.htm
b. http://www.cosatu.org.za/docs/pr/2007/pr1129b.html
c. http://www.allbusiness.com/accounting/budget/236463-1.html
In the midst of service-delivery riots, dissatisfaction among civil servants and many other pressures, it is common to hear that there are insufficient resources to deliver the desired services or to meet the demands of the personnel. This is in spite of disappointing reports of departments taking money back to Treasury at the end of each financial year - monies meant to facilitate the delivery of the very same services whose nonexistence elicits violent protests! This paper seeks to explore the patterns of expenditure in government departments and identify areas for intervention by the officials.
Cloete (1995:39) argues that it would be inappropriate to break the relationship between the budget and service delivery. He further argues that once government appropriates resources that are insufficient, it is tantamount to a breakdown in service delivery. This argument thus agrees with the common theory that funds not spent equal to service delivery denied. Civil activists even go further to say that service delivery delayed is equal to service delivery denied. This argument arises from the fact that access to basic services is a right enshrined in the constitution and thus it is justice. The acceptable percentage of under-spending in accounting processes is 2%, however this allowable percentage may amount to millions that have a potential to improve the lives of the poor.
The Public Financial Management Act (PFMA) provides the official legislative mandate for all financial matters with its responsibilities outlined in Chapter 13 of the Constitution. The key words that arise in its main objective include regulate, efficiency, effectiveness and provide responsibilities (Republic of South Africa: 1999). It drives the regulation of public finance management and reporting in an inseparable relationship with the strategic planning, performance review and reporting frameworks. It establishes the process that should be followed throughout the financial or budget cycle from the multi-year budgeting system, standard chart of accounts, monthly in-year monitoring, performance monitoring, expenditure and revenue management and reporting. These regulatory measures are in agreement with the International Standards set by the Public Sector Commission and the International Auditing Standards.
These reforms in the public sector seek to ensure that there is financial accountability between government and the social citizens. Accountability in this context relates to ensuring that resources are managed efficiently and they effectively respond to needs that have been highlighted through a public participatory process whether through stakeholder engagements or the election process. Because of the history of the country, the inequality between citizens becomes a glaring service delivery challenge. While the minority that has access to services has been vocal when services are poor to the extent where in some communities they withhold rates, there are destitute communities which are continuously victims of backlogs in the provision of housing and suffer poor service delivery in health and education and hence reference will be made to these three departments.
Nationally, the performance of departments has shown significant improvements when analysing reports from 2007 to 2009. This can be attributed to the strict standards being enforced through SCOPA, but also the conditions that are upheld by national departments in issuing conditional grants to provinces and municipalities through Transfers and Subsidies. National Departments are the policy drivers, providing the necessary support and having oversight over provinces and municipalities on service delivery issues. Although they are not directly responsible for infrastructure delivery, they divert their resources through grants, subsidies, transfers and their public entities and as a result incur limited expenditure on capital assets. However, in the 2007/08 financial year, the Department of Public Works recorded the highest levels of under expenditure at 9.8%; although the following year, the Department of Water Affairs registered a significant 7.2%.
In the year 2007/08, the Department of Housing recorded an under expenditure of 4.4% equivalent to R395.6 million, which decreased in 2008/09 to 0.1%, while the Department of Health has consistently under spent more than R300 million in both periods at an average of 2.45%. In both periods, the Department of Housing drastically increased their communications budget relating to a media campaign around Breaking New Grounds. This resulted in virements and shifting of funds between the programmes and expenditure items with the Rental and People’s Housing Process Programme losing out on R 20 billion. With the high levels of dissatisfaction regarding RDP housing and the social unrest related to housing delivery, it is a concern that substantial resources were diverted to media campaigns of doubtful importance.
The Department of Education has been able to stay below the threshold of under-spending at an average of less than 1%. However, the biggest allocations from the department were subsidies to higher education institutions, the National Student Financial Aid Scheme and the National School Nutrition Programme (NSNP). This is one of the Departments that have continuously under-spent on compensation of employees, which was attributed to high staff turnover and the inability of the department to fill vacant positions that are funded. A significant portion of the department’s mandate rests on human capital and the monitoring and evaluation of interventions which is a serious service delivery challenge. The highest under-spending in the department is related to Systems Planning and Monitoring at 41.5%, however, the department claimed that this was attributed to delays in implementation of programmes, lengthy consultation processes and suppliers submitting invoices late. However, it should be noted that the same programme made a virement at the adjustment budget to other programmes and that the Department has also been rolling over funds for reasons similar to those of its counterparts.
Provincially, the performance of Departments is much more worrisome in that, according to the Auditor General’s reports, only a few departments had unqualified reports. The Department of Housing in year 2007/08 received a qualified report while the Department of Education and the Department of Health had an adverse opinion. In expenditure, the Department of Health made a number of virements while the department also requested large rollovers to the following financial year. This also continued in the following year, although there was less shifting of funds and virements. The capital expenditure on the General Hospitals Programme was under-spent by 20%, while in the Provincial Hospital Services programme only 33% of the funds allocated were spent in Machinery and equipment. The District Health Services also released significant portions of its capital assets budget through virements. These two programmes are core programmes in the department. This under-expenditure is also reflected at national level; it is argued that it is a result of challenges around the Hospital Revitalisation Programme and some technical challenges on the purchase of machinery and equipment.
It has been argued that the inability of Departments to spend their budgets is a reflection of capacity issues and the lack of political will within the Departments (Cosatu: 2007). Majoe argues that poor planning and a lack of technical skills is the reason for under-spending in departments. These arguments may be true in view of the findings of the Auditor General in the provincial Departments. It seems in all three Departments (Housing, Health and Education) there are serious challenges in recording financial information and in keeping organisational documentation. With specific reference to the Department of Education, the Auditor General is critical of the internal controls being exercised in the Department, the lack of a paper trail, misallocation between accounts of expenditure and high under expenditure on Transfers and Subsidies and capital expenditure. This impairs the performance of the Department and leads to unreliable decision-making and poor service delivery. Similar concerns have also been observed in the Department of Health, but including significant flaws in procurement processes, overstating of capital expenditure and understating of under-expenditure, the duplication of payments to service providers and overpayments to old staff members.
This analysis shows a complexity of the internal problems that may contribute to the low service delivery levels. It is clear that there is a gap in the planning processes that may be partly attributed to the multi-year incremental budgeting approach where officials do not necessarily engage in an activity-based budgeting process thereby avoiding allocating resources to items, sub-programmes or programmes that will not be able to use them leading to the need for transferring funds across.
The consistently high levels of roll-overs, virements and shifting of funds, shows that more could be done in aligning the budget to the operational plans at planning phase. The above mechanisms have become an operational activity whilst they were designed to be interventions in cases where unforeseen circumstances arose during a given financial year. The continuous rolling over of funds creates a precedence of delayed service delivery that cannot be attributed to scarcity of resources and thus an unfair disservice to the poor.
There seems to be a need to improve the technical skills of finance personnel in carrying out their activities and also in understanding the auditing processes. It is unacceptable that service providers are paid twice for the same service and this reflects a weakness in the payment systems. Whether this is a result of human error or an override of controls, it needs to be sorted out. Procurement is a crucial and sensitive area in government with progressive legislation guiding all processes. However, the consistency of unauthorised expenditure shows the weaknesses of the control environment. There are cases where officials are going beyond their delegated authority in approving payments or appointment of service providers. The use of section 16 of the PFMA (procurement in emergency cases) may be another cause for the unauthorised expenditure and perhaps departments need to define emergency at departmental context. The presence of irregular expenditure confirms the lack of political will to comply with applicable legislation. This contributes to the flawed procurement processes, which at times cannot be stopped because of political interference.
These weaknesses are detrimental to service delivery, especially in provinces like the Eastern Cape whose population is very poor and rural. It thus calls for serious activism within civil society in the arena of advocacy to promote accountability, transparency and ensure that the required services are delivered to the public. It is also up to the public service to be empowered through technical training to support the knowledge-based training provided by government departments. There also needs to be a way of enforcing responsibility in the financial management personnel. However, there is a great need for political leadership and guidance in public sector activities. Perhaps the suggestion to give greater powers to the Auditor General and Standing Committee on Public Accounts will go a long way in restoring public confidence in the public finance management system.
References
1. Auditor General. 2010. PFMA General Reports. www.agsa.co.za. Accessed on 20 November 2010
2. Cloete, J.J.N. 1994. Public Administration and Management. JL van Schaik Publishers. Pretoria
3. Eastern Cape Department of Health. Annual Reports. www.doh.ecprov.gov.za . Accessed on 10-23 November 2010
4. Eastern Cape Department of Housing (Human Settlements). Annual Report 2008/09. Accessed on 10-23 November 2010 http://echousing.ecprov.gov.za/modules/documents/Annual%20Report%202008_09.pdf
5. Nachi Majoe: Friedrich Naumann Foundation for Liberty, http://www.eumunicipaloutreach.org.za/
6. Republic of South Africa. 1996. The Constitution. Government Printers. South Africa
7. Republic of South Africa. 1999. Public Finance Management Act. www.treasury.gov.za. Accessed on 14 November 2010.
8. Republic of South Africa. Departmental Annual Reports. www.info.gov.za. Accessed on 10-23 November 2010
a. Department of Housing Annual Report 2007/08
b. Department of Health Annual Report 2007/08
c. Department of Education Annual Report 2007/08
d. Department of Housing Annual Report 2008/09
e. Department of Health Annual Report 2008/09
f. Department of Education Annual Report 2008/09
9. Articles:
a. http://apha.confex.com/apha/129am/techprogram/paper_30183.htm
b. http://www.cosatu.org.za/docs/pr/2007/pr1129b.html
c. http://www.allbusiness.com/accounting/budget/236463-1.html