National government is rejecting calls to bail out delinquent provinces brought to the fiscal brink by chaotic accounting, social grant fraud and inadequate budget controls. And with even well-off provinces squeezed for cash, the debate over provincial taxation is gaining a sharp new edge as some provinces plan to impose their own fuel tax.
KwaZulu-Natal
The KwaZulu-Natal government is facing a ”major systems breakdown” in three provincial departments as mismanagement, negligence and fraud have resulted in over expenditure of R1,5-billion in the past financial year. A KPMG report has found that nine out of 10 provincial disability grants were made fraudulently.
The bad news is that the Treasury regards KwaZulu-Natal as one of the better fiscal performers, which suggests that the crisis in provincial financial management is widespread.
This month the provincial standing committee on public accounts was forced to take exceptional recuperation steps to salvage these departments, said Joanne Downs, the committee chairperson and deputy president of the African Christian Democratic Party.
”Several departments have little or no financial controls in place, resulting in mismanagement. This has led to a major systems breakdown,” she said.
Two weeks ago the public accounts committee stepped into action demanding that three provincial departments — education and culture, public works and social services and population development — submit quarterly progress reports detailing the measures they are taking to retrieve and stem their over expenditure and to ”overhaul” internal control systems.
”We have given each of these departments until the end of this month to present the five most important financial control issues that will make 80% of the difference in terms of bringing to an end the over expenditure in the province and flushing the system of mismanagement,” said Downs.
”It is now going to cost the KwaZulu-Natal government about R2-billion to rectify the situation.”
According to Ismail Momoniat, the Deputy Director General for intergovernmental relations in the Treasury, oversight by legislatures needs to improve so that greater control is exercised over provincial finances.
”It’s only when legislatures adopt a critical and constructive approach that you can get behind the underlying reason for [over expenditure],” he said.
However, he said that KwaZulu-Natal ”has a reasonably high quality of financial management compared to other provinces”.
The Free State is in the poorest financial state, with eight qualified audits, while Mpumalanga has one qualified audit and one department that has overspent.
The worst malefactor in KwaZulu-Natal is the social services department, which has overspent by R693-million on social assistance grants. This is in addition to over expenditure of R840-million from the previous financial year that has been carried over.
”The obvious reason … is that the number of social security grant beneficiaries far exceeds what has been budgeted for,” said Belinda Scott, the chairperson of the provincial social welfare portfolio committee. ”The major reason is that the level of corruption is just unspeakable in the social services department both because of the fraudulent grants that are coming in as well as corrupt departmental officials.”
She says that on average the over expenditure figure is increasing by R130-million a month. ”The national government has already bailed us out by R500-million this year. It is therefore unlikely that they will help again.”
Momoniat said the Treasury will help the province by putting measures in place to assist it to manage its finances but ”it is up to the provincial executive in the first instance and then the legislature to get an explanation for the financial weaknesses. Once they have diagnosed the problem they have to take corrective steps.”
A report by KPMG on the social grant system on the KwaZulu-Natal South Coast shows that 90% of the disability grant uptake was fraudulent.
Another report completed this year by the provincial social services department shows that in the Mahlabatini region, near Ulundi, 0,7% of social grant applicants were rejected. Similarly, in Mandeni on the North Coast only 0,1% of applications were rejected.
The reason for this imbalance is doctors who issue bogus medical certificates to people who do not qualify and fraudulent assessment panels.
The assessment panels were introduced in 2002 so that people who lived in areas where there were no doctors could access social grants. According to Scott, ”arbitrary community members were appointed to sit on these panels and as a result would not reject their fellows applying for grants”.
In August the provincial treasury and the social services department suspended the assessment panels and appointed seven auditing firms to begin a forensic investigation. A sum of R8-million has been set aside for the investigation.
The firms have formed a consortium and have begun investigating 41 ”red flag” areas where ”there are high volumes of beneficiaries”, said Sipho Tshabalala, the director general in the provincial treasury.
According to the pro-vincial minister for social services, Inkosi Ngubane, ”we are expecting that 10 000 people at the very least will be removed from the system … We are hoping that this new system will rectify the situation where in the rural areas every Tom, Dick and Harry is receiving a social grant.”
Eastern Cape
The Treasury will veto a request from the Eastern Cape government to bail it out of its R1,7-billion deficit in the face of a renewed avowal that any shortfalls will have to be financed from next year’s budget because the state will no longer rescue incompetent provinces.
Provincial minister for finance in the Eastern Cape, Billy Nel, said that he will request a bail-out from the Treasury at the end of this financial year.
The appeal for aid is an attempt to forestall contravening a statutory requirement that a province’s books should close without a deficit.
However, ”provinces that ended up with an overdraft last year will have to run surpluses in this year and next years’ budgets,” said Momoniat. ”It is the policy of the Treasury not to bail out provinces that have financial problems. The National Treasury allocates funds equitably between provinces and does not award more to provinces that overspend their budgets.
”I have read press reports that the province is going to be applying for a bail out … to be honest there are not the extra funds to give to any province that is in trouble,” said Momoniat.
The Eastern Cape and the Northern Cape are the only two provinces that are already operating on overdrafts. In the Eastern Cape the problem is caused mainly by the provincial education department, which is overdrawn by R602-million and the social development department, which has a R628-million overdraft.
Nel has already instituted controversial cost containment measures under the title Budget Belt-Tightening Exercise, which forced departments to surrender from their budgets to diminish the deficit. To date, Nel says, this exercise has yielded R598-million, still a far cry from putting the province back on an even keel.
In addition to this, he said, the provincial treasury is ”looking at the possibility of selling off some of the physical assets in the province”. He was unclear about what these were but said he would be ”working closely with the provincial public works department”.
Another salvage plan that is likely to cause waves in the province is the possibility of a fuel levy. ”The fuel levy is not high on the agenda yet because it is a very emotional thing, but it is a possibility,” said Nel.
”One of the interesting things in the Eastern Cape is that only 2,7% of our total budget is own revenue, which we derive mostly out of gambling taxes and motor vehicle licences, for example. It is far too small and we need to find ways to grow this.”
Next year’s budget allocations to the nine provinces will increase by R33,5-billion, or an average of 4%, in real terms over the next three years.
The biggest change is that the R41-billion normally allocated to the provinces as part of equitable share will be made a conditional grant.
This measure comes ahead of the establishment of a National Social Security Agency, which is set to take over all social grants payments at national level in a bid to control fraud.
Despite Momoniat’s insistence that the province must fend for itself, Nel remains confident that ”National Treasury is aware of our dilemma and is not going to throw us away.”
The high cost of long weekends
The auditor general has refused to certify accounts for the KwaZulu-Natal education department for the fifth consecutive year because abysmal financial controls have resulted in over expenditure of R102-million.
One of the reasons for the over-expenditure is that teachers take long weekends and sign them off as sick leave.
According to legislation civil servants have 36 normal sick leave days over a three-year period. If they exceed this they are granted an additional 30 days temporary disability leave, during which time an investigation, by the department, into their illness has to be done. Based on the findings of the investigation additional leave can be granted.
However, education is a special case in that once a teacher exceeds his or her 36 days of normal leave a temporary teacher is appointed, adding heavily to personnel costs.
In one area cited by the auditor general 1 555 employees took 41 334 sick leave days in excess of the normal sick days at a cost of R12-million to the department.
In addition, R1 531 778 was paid towards the salaries of temporary teachers in the area.
Of the sick leave taken 61% was captured on the system as ”unknown/no type of illness” and 30% of leave taken was on a Monday, ”indicating a possible trend of extended weekends which contributes to inefficient utilisation of resources”, says the report.
According to the Public Service Commission, at the national level 28% of sick leave is taken on a Monday. On average, the annual cost to the state for sick leave is R631-million for national and provincial government.
The provincial minister of education, Ina Cronje, said: ”I am in the process of conducting various investigations into financial irregularities and systemic matters.”
Paying for empty offices
The provincial department of public works, the heartbeat of infrastructure development in KwaZulu-Natal, is the quintessence of mismanagement.
One of the most illuminating examples in the auditor general’s report was an invoice the department received totalling R2 776,66 from a travel agent, the payment for which was captured as R1 042 004,00. This means the department overpaid by R1 039 227,34.
”Documentation was provided which indicates that the overpayment was subsequently off-set against later invoices,” according to the report.
In addition, a full departmental inquiry is under way into the rental of a building in Durban, supposedly for the purpose of relocating the department from Ulundi. It has never been occupied, though over R4-million has already changed hands.
To date the department has not taken occupation of the building and four of the six floors are occupied by other tenants.
In July this year the head of department, Edmond Radebe, was suspended on full pay pending the outcome of the departmental inquiry.
According to Meshack Radebe, chairperson of the public works portfolio standing committee, the report of the investigation will be tabled in the legislature next week. ”Corrective action will then be taken,” he said.
Other details in the audit report include a 23% vacancy rate in the department, no asset register and eight forensic investigations conducted over the past year into procurement and tender irregularities, which remain unacknowledged by the management of the department.