EASTERN CAPE DEPARTMENT OF HUMAN SETTLEMENTS EXPENDITURE REPORT

Eastern Cape Department of Human Settlements Expenditure Tracking Report 2011/12 Yeukai Mukorombindo December 2012 Public Service Accountability Monitor For more information contact the PSAM at [email protected] Tel: (046) 603 8358, Fax: (046) 622 7215 Findings And Recommendations 1. Finding: The Annual Report reveals the DepartmentR2.14 billion out of a total adjusted budge . The Department incurred under expenditure of 18% (R472 million) for the 2011/12 financial year which has been accounted for under accruals/roll overs of invoices/commitments to the value of the R472 million. However according to the Auditor General 1 Departmental commitments were reviewed and updated on a regular basis is required to avoid the possibility of over-expenditure to unacceptable levels. 2. Finding: The Department failed to address it 2 Recommendation: The AO is also obliged by the PFMA to take all the necessary steps to prevent irregular and fruitless expenditure as well as take disciplinary measures against officials who are not complying with all legal and regulatory provisions outlined in the PFMA. The Department needs to ensure that irregular expenditure does not occur again in future as the Department is already battling resource shortages and must make effective use of available resources. 5. Finding: The Auditor General awarded the Department a qualified audit yet again because of the Department 3 Introduction The South African Constitution commits government departments to the progressive realisation of socio-economic rights, including the right to education, healthcare, housing and social welfare, within available resources. The PSAM defines social accountability as the obligation by public officials and private service providers to justify their performance in progressively addressing the above rights via the provision of effective public services.1 In order to effectively realise these rights through the delivery of public services, state departments and private service providers responsible for the management of public resources must implement effective accountability and service delivery processes. These include: planning and resource allocation processes; expenditure management processes; performance monitoring processes; integrity management processes; and, oversight processes. Together these processes combine to form a social accountability system, which acts as the central pillar of a responsive democratic state. The effectiveness of these processes can be established by monitoring their information outputs. To evaluate the social accountability system, the PSAM has developed a set of evidence-based tools for monitoring the information produced annually by each process. This Report focuses on the implementation of an effective expenditure management process by the government department under review. It provides an account of what funds were available and whether they were spent during the financial year under review. The Eastern Cape Department of Human Settlement 4 · · Programme 3.1, Project Management and Quality Assurance, The programme is also responsible for ensuring that housing projects are well located and that quality housing infrastructures are constructed within building regulations, housing norms and standards Programme 4, Housing Assets Management, manages rental and social housing stock, maintains housing assets and an asset register, and assists in the acquisition of land for housing development Broad overview of Expenditure Table 1: Expenditure over the last five years2 Financial Year 2007/08 2008/09 2009/10 2010/11 2011/12 Total Total Budget R☂000 616,082 1,168,801 1,531 715 1,865,939 2,615,470 7,798,007 Expenditure R☂000 395,340 1,228,255 1,530,764 1,725,515 2,143,154 7,023,028 Variance: (over)/ under expenditure R☂000 220,742 (59,454) 951 140,424 472,316 893,887 % of (over)/under expenditure R☂000 35.8 (5.1) 0.06 7.5 18 11 As Table 1 illustrates, the Department spent R2.14 billion of its R2.61 billion budget which is an under- expenditure of 18% of its total allocation. Table 1 also reflects a general history of under expenditure of the overall budget. The table shows that the under-expenditure is somewhat volatile in that it has ranged from as little as 7% and to 35% , with one exception of 5% over expenditure in the 2008/09 financial year. For the last 5 years, the Department 5 and commitments to the value of R930 million.4 The Auditor General 6 8.4%.9 This was as a result of an insufficient equitable share budget which has a direct impact on the Goods and Services budget.10 For the 2011/12 financial year, this line item has not incurred any over-expenditure. The Department has managed to spend efficiently and effectively within their budget by cutting expenditure of non-core goods and services.11 The Department is encouraged to continue to relieve pressure on the Goods and Services budget by continuously cutting expenditure on non-core items. The under expenditure of R472 million or 20% under the 7 Departmental Expenditure by Programmes Table 3: Budget and Expenditure per programme for the Department of Human Settlement, 2011/1217 Almost all the Department 8 Table 4: Virements between Programmes Programmes Administration Housing Planning and Research Housing Development Housing Assets Management Total Adjusted Appropriation R' 000 2011/12 105,529 18,130 2,484,044 7,767 2,615,470 Virement -1,069 -122 1,461 -270 Final Appropriation R' 000 104,460 19,008 2,485,505 7,497 2,615,470 The table above shows that money was moved from the Administration Programme , Housing Planning Programme and the Housing Assets Programme to augment over 9 The expenditure of the conditional grant will now be considered. Table 5: Eastern Cape Department of Human Settlements, Conditional Grant Expenditure during 2011/12.25 Name of grant IHHSDG Division of Revenue Act Rollovers & Adjustments Total Available Amount Received by Department Amount Spent by Department R☂000 2,177,676 R☂000 133,828 R☂000 2,311,504 R☂000 1,911,992 R☂000 1,897,075 1,911,992 1,897,075 EPWP Housing Disaster Total 711 711 2,178,387 56,700 2,368,915 Variance as % of total available funding 17.9% 133,828 19.9% For the 2011/12 financial year, the Department was allocated R 2,17 billion and received an additional R56 million to address disasters in the province plus another R711 000 for the Expanded Public Works Programme.26 The total grant therefore increased to R 2, 36 billion and total spent by Department was R 1.89 billion which represents expenditure of 82% of the total R2.36 billion grant allocation. The Accounting Officer explained that the 18% or R472 million grant under expenditure has been accounted for under the 10 R930 million including the R472 million worth of commitments, the Department over spent its grant by R 458 million or 19%. On the other hand, if the R930 million worth of commitments is additional to the other commitments of R472 million, the Department therefore over spent its grant allocation by R930 million or 39%. The Integrated Housing and Human Settlements Development Grant (IHHSDG) is slightly more than 80% of the total Human Settlements budget. This is because the Grant funds the majority of departmental housing projects such as the construction of the top structures and informal settlement upgrading services.30 The Department has a history of under-spending its grant allocation. In 2007/08 the Department underspent its grant allocation by 49.3%31 and in 2008/09, R270 million was withheld by Treasury.32 However, over the last the last two financial years, the Department has managed to spend its grant allocation effectively with under expenditure of between 0% and 8% respectively.33 The possible massive over-expenditure by the Department in the 2011/12 financial year is a disappointment considering that much progress has been made by the Department in improving its efficient grant expenditure over the last two financial years. The Auditor General attributes the 2011/12 possible over 11 · · · · · · Delays in procurement Late appointment of contractors and other service providers Poor performance by contractors Lack of skilled financial and project management capacity Poor municipal planning Bulk infrastructure challenges Unless these challenges are addressed, the Department will continue to under-perform. Internal Control The system of internal controls is an important mechanism aimed at guarding against fruitless and wasteful expenditure and/or other kinds of mismanagement of public resources. Internal controls and internal audit mechanisms are prescribed in sections 38,76 and 77 of the PFMA.38 The Department now has an internal audit function which reports to the AO regarding the Department 12 13 Furthermore, the Audit Committee failed in its responsibility to provide adequate oversight over management to ensure that Departmental commitments were reviewed and updated on a regular basis.53 In addition to these deficiencies, the report of the AG discovered that the Department incurred irregular expenditure totaling R7.2 million for the year under review.54 The expenditure incurred was in contravention of the Public Service Regulation relating to human resource management practices.55 Fruitless and wasteful expenditure of R46 000 was incurred as a result of non-compliance, payment for services not rendered, traffic fines and interest charged on late payments.56 Fruitless and wasteful expenditure increased to R46 000 this financial year from R37 000 in the 2010/11 financial year.57 It is however unfortunate that the AG 14 · · Adequate oversight from leadership to ensure that Departmental commitments were reviewed and updated on a regular basis And finally that management prepares regular, accurate and complete financial and performance reports that are supported by evidence and reliable information. 15