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2011/12 Unaudited Close-out and 2012/13 First Quarter Budget Performance Reports

2011/12 Unaudited Close-out and 2012/13 First Quarter Budget Performance Reports. KwaZulu-Natal Provincial Treasury. Presentation to Select Committee on Finance 14 August 2012. Presentation Outline. 2011/12 Unaudited 2011/12 Provincial Budget Summary Unaudited Provincial Own Revenue

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2011/12 Unaudited Close-out and 2012/13 First Quarter Budget Performance Reports

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  1. 2011/12 Unaudited Close-outand 2012/13 First Quarter Budget Performance Reports KwaZulu-Natal Provincial Treasury Presentation to Select Committee on Finance 14 August 2012

  2. Presentation Outline • 2011/12 Unaudited • 2011/12 Provincial Budget Summary • Unaudited Provincial Own Revenue • Unaudited Budget Performance • Summary of provincial expenditure • Conditional grants • Infrastructure • 2012/13 First Quarter • Provincial Own Revenue • Budget performance by Vote • Conditional grants • Infrastructure

  3. 2011/12 Unaudited Outcome

  4. 2011/12 Provincial Budget Summary

  5. 2011/12 Provincial Budget Summary • Bulk of provincial receipts relate to ES, contributing 79.8% of total revenue with CG at 16.8% and provincial own revenue making up the balance of 3.4% • The unaudited actual shows that KZN received R13.348bn CG funding, which is a shortfall of some R3.490m when compared to the Final Appropriation. This is due to not all EPWP Incentive grant and Social Sector EPWP grants funding being transferred to depts, due to poor spending • Final Appropriation includes a reduction of R55m by the National Dept. of Public Works against the Devolution of Property Rate Funds Grant for Provinces which was withheld from KZN and allocated to other provinces. This was formalised by way of a Second Adjustments Estimate which was tabled in the Provincial Legislature on 9 March 2012. The savings arose from a dispute in respect of properties which the eThekwini Metro had included in the dept’s list of properties for the payment of rates. These properties were found to not belong to provincial depts but to national depts and the metro itself • The province over-collected against provincial own receipts, collecting R2.715bn compared to the budget of R1.943bn. This over-collection of R771.976m is discussed in more detail later

  6. 2011/12 Provincial Budget Summary • As such, actual receipts for 11/12 amounted to R79.647bn compared to Final Appropriation of R78.879bn, resulting in a surplus of R768.486m • The unaudited actual provincial payments amount to R78.649bn, of which current payments is the largest proportion at 78.8%, followed by transfers at 12.2% and capital payments at 9.1% • KZN’s surplus at the end of 11/12 amounts to R1.399bn and results from the following: • KZN budgeted for a surplus of R948.008m in 11/12 • KZN over-spent its budget allocation by R317.462m in aggregate in 11/12 • KZN over-collected its own revenue when compared to the Final Appropriation by R771.976m • Mitigating this to an extent, is the fact that NT did not transfer R3.490m in respect of the EPWP Incentive Grant for Provinces and Social Sector EPWP grant, due to slow spending by some departments • The Committee is reminded that the budgeted surplus of R948.008m results from not allocating the full ES allocation to depts

  7. Provincial Own Revenue

  8. Provincial Own Revenue • The aggregated unaudited revenue collected by KZN depts amounted to R2.715bn compared to the Final Appropriation of R1.943bn, resulting in a substantial over-collection of R771.976m or 39.7% • The depts largely responsible for the provincial over-collection are Provincial Treasury, followed by Human Settlements and then by Education and Transport • Counter-acting the over-collection by these depts is fairly significant under-collection by Economic Development and Tourism and Health • Provincial Treasury over-collected by R280.405m. This over-collection is mainly in relation to interest earned on positive cash balances due to the improvement in the funds in the PMG and IGCC accounts. These accounts have been cash positive since May 2010 due to cost-cutting and tight cash management in KZN

  9. Provincial Own Revenue • Human Settlements over-collected by R268.032m due to: • R85.228m returned to the PRF by an implementing agent (Thubelisha Homes) who had gone into liquidation. These funds have been appropriated back to the dept in 12/13 for the continuation of these projects • Also contributing to the over-collection is R176.105m in respect of the Wiggins and Bonela project. R126.859m relates to accumulated interest which the dept has asked to be allocated back to them for the construction of a head-office. This is still under discussion. Guidance was sought from NT regarding keeping the capital amount of R49.248m in the province, to be used for housing projects and this has been approved by NT • Transport over-collected by R201.534m largely due to higher than anticipated new motor vehicle licences and higher than anticipated applications for learners’ and drivers’ licences, as well as the improved registration in respect of classification of vehicles, such as abnormal and special vehicles

  10. Provincial Own Revenue • Education over-collected by R34.270m mainly due to higher than anticipated commission on PERSAL deductions relating to insurance and garnishees, discounts received from LTSM suppliers and higher than anticipated recoveries of staff debts • Office of the Premier over-collected by R30.118m mainly against Casino taxes and Horse racing taxes due to conservative budgeting • Economic Development and Tourism on the other hand under-collected by R45.099m. This is mainly due to the low revenue collected from Liquor licences which, at the end of March 2012, only showed collection of 2.6% of the dept’s annual budget. Certain portions of the KZN Liquor Licensing Act cannot come into effect until DTI has repealed the current Act. As a result of these sections not coming into operation, the tariffs for liquor licences could not be reviewed and increased as was projected in the budget • Health under-collected by R19.8m due to over-budgeting based incorrectly on previous’ years collection that included non-recurrent collections such as backlogs in respect of claims from the RAF

  11. Summary of Expenditure

  12. Expenditure • The aggregated actual expenditure for the year amounts to R78.649bn compared to the Final Appropriation of R78.332bn, resulting in over-expenditure of R317.462m • While the over-expenditure is not alarming when compared to previous years, it is worth noting that Comp of emplwas over-spent by R1.335bn due mainly to the carry-through effects of the shortfall in funding for OSD for educators, the reversal of the ‘no work, no pay’ journal amounting to R576m under Education, the increase in stipends for ECD practitioners, the increased hourly rate of ABET practitioners and the conversion of 600 teacher assistants to teacher aids, as the dept was paying less than the national norms. This over-spending takes into account the additional funding allocated to the dept to partially off-set spending pressures in respect of OSD for educators (Discussed in detail later) • The unaudited year-end over-exp is an improvement to some extent when compared to the last few years where KZN showed substantial over-expenditure, with the exception of 10/11. Important to note is that these are only unaudited numbers and that KZN will be preparing an Audited IYM now that the annual audit has been completed • 3 depts over-spent their budget at year-end, with the most significant by far being Education at R572.216m and Health at R122.022m • Provincial Treasury reflects the most significant under-spending at R119.699m, followed by Sport and Recreation at R50.497m

  13. Expenditure • Education over-spent its budget by R572.216m, even after additional funding was provided to the dept in the 11/12 Adj Est, due to the carry-through effect of the shortfall in funding for the OSD for educators and previous years’ wage agreements, increase in ECD and ABET rates and the conversion of teacher assistants to teacher aids. The year-end over-exp includes the reversal of the journal processed in the latter part of 10/11 (amounting to R576m) relating to the ‘no work, no pay’ deductions relating to the 2010 strike action, and this has added to the cost pressure under Comp of empl (which was at R1.449bn at end March 2012) • Education and PT are working on a detailed sector analysis comparing KZN’s Education dept to the other 8 provinces as most other Education depts are not showing spending pressures at the level that KZN is. In fact, the next highest over-exp was recorded by EC at some R353m (prelim numbers) and Limpopo at R122m (prelim numbers) • This sector analysis contains a number of recommendations to the dept in terms of controlling its expenditure and reprioritising its budget going forward • The sector analysis is at an advanced stage and has already been presented to the MEC for Education in KZN. The next step is to present it to the officials of the department for them to adopt the recommendations going forward

  14. Expenditure • Health over-spent its budget by R122.022m despite having reflected projected under-spending in prior IYMs • This over-expenditure relates partly to the increased cost of NHLS related to an agreement to increase the monthly pmt from R34m to R43m, until such time as the dispute is finalised, as well as an agreed to once-off pmt of R50m towards HIV and AIDS costs. The negotiations with NHLS regarding the contract are currently underway. An arbitration process is almost complete and a decision is expected in 12/13 • Also contributing to the over-expenditure is an additional payment of R70m on the PPP, made by Inkosi Albert Luthuli Central Hospital to address backlogs in quarterly payments as the dept had been paying a quarter in arrears in previous years and rectified this in 11/12 by making 5 payments • Also contributing was over-spending against Comp of empl attributed to the ongoing processing of various OSDs (occupational therapists, advanced maternity staff and artisans) which will be concluded in 12/13 • Apart from this over-expenditure which is mainly against Goods and services, the dept under-spent against Machinery and equipment due to delays in the delivery of medical equipment

  15. Expenditure • Transport over-spent by R11.811m, due to the higher than anticipated cost of repairs to roads and infrastructure damaged by floods, mainly in the Ladysmith area, in December 2010 and January 2011. In addition, the higher than anticipated rehabilitation of roads undertaken in line with a detailed technical analysis of the road conditions in KZN also contributed to the over-exp Counteracting the over-expenditure by these departments, was under-expenditure by the following departments: • Provincial Treasury under-spent by R119.699m. This relates mainly to unused allocation of interest on overdraft resulting from improvement in funds in PMG and IGCC accounts. Also contributing were delays in appointing service providers under the Municipal Support Programme and initial slow uptake of Infrastructure Crack Team by depts and municipalities • Sport and Recreation under-spent by R50.497m due to delays in filling posts and due to delays in implementation of new organisational structure. There were delays in moving head office from Dbn to Pmb due to difficulty in finding suitable office space. The dept also under-spent due to challenges in obtaining appropriate bidders for the construction of futsal and combination courts which resulted in delayed implementation of projects

  16. Expenditure • COGTA under-spent by R50.091m as a result of delays in various projects, such as the construction of houses for amakhosi due to longer than anticipated consultation with traditional leaders with regard to approval of plans and designs, and 3 Traditional Administrative Centres (TACs) due to negotiation of the wages for local labour taking part in these projects taking longer than anticipated. Also contributing were delays in the filling of vacant posts due to the internal moratorium linked to the dept’s restructuring • DEDT under-spent by R43.390m mainly due to delays in filling vacant funded posts and delays in the establishment of the KZN Liquor Entity • Human Settlements under-spent by R41.417m mainly due to under-spending against the Housing Disaster Relief grant (R21.637m) which is explained in detail later, and the non-filling of vacant posts due to the review of the organisational structure due to it creating offices at a district level in order to bring services closer to the people. Also contributing was a delay in the implementation of the rectification of pre-1994 housing stock as the National Home-Builders Registration Council (NHBRC) was in the process of compiling rectification scoping reports which will indicate exactly what rectification will be done to what properties • Public Works under-spent by R20.335m mainly due to delays in filling posts and under-sp under the Devolution of Property Rates grant due to late receipt of invoices from municipalities. Also contributing were delays by contractors and slow progress on projects such as the Southern regional office, head office, Dundee and Greytown district offices, among others

  17. Conditional Grants

  18. Conditional Grants

  19. Conditional Grants • The conditional grant allocation for KZN is under-spent by R72.948m, with the main contributors to this under-spending being Education, Human Settlements and Public Works • Education under-spent its conditional grant funding by R29.515m: • The main contributor being the NSNP grant which was under-spent by R27.714m, largely due to delays in the receipt of March invoices, as is the norm every year. A roll-over has been requested and approved by NT • The Technical Secondary Schools Recapitalisation grant under-spent by R1.801m, due to delays in delivery of technical equipment and furniture for schools. A roll-over has been requested and approved by NT • Human Settlements was under-spent by R27.699m due to the database of service providers to deal with emergencies taking longer than anticipated. A roll-over was requested but not approved as the dept failed to provide evidence that the funds were committed before year-end • Public Works under-spent its Devolution of Property Rate Funds Grant to Provinces by R16.4m due to the late receipt of invoices and insufficient information in respect of invoices received from some municipalities for property rates

  20. Conditional Grants • The EPWP Incentive Grant for Provinces was under-spent as follows: • Economic Development and Tourism did not spend this grant funding as they were unable to identify projects which would meet the required criteria • Health did not spend the grant allocation due to difficulty in obtaining the necessary supporting information from its implementing agents to enable the dept to claim against this grant • Human Settlements did not spend this allocation as they did not have sufficient staff to run with this project

  21. Infrastructure

  22. Infrastructure • Table 5 gives a breakdown of infrastructure expenditure by department and category of project against the 11/12 infrastructure budget • Actual infrastructure expenditure was at 98.4% of budget, showing under-spending of R203.934m against the Final Appropriation. It must be noted that this amount is made up of various under- and over-spending in depts, as indicated below: • Health under-spent by R65.535m, mainly due to poor planning and design in respect of the Ekhombe Hospital and the consolidation of a number of plans for the Natalia building into one project, which resulted in delays. Also contributing were delays with the tender for the re-organisation of the Northdale Hospital pharmacy project • Transport under-spent by R43.408m due to delays in some routine maintenance projects due to the high turnover of Zibambele contractors • Social Development under-spent by R41.711m due to delays by implementing agents in terms of procurement processes (Public Works and IDT) • Education under-spent by R18.014m due to slow progress in implementing new projects , such as ECD facilities and special schools, due to unacceptable performance by implementing agents. The dept over-spent against other infrastructure categories by addressing backlogs with regard to rehabilitation, renovation and upgrading of existing schools

  23. 2012/13 First Quarter Report

  24. Provincial Own Revenue

  25. Provincial Own Revenue • Actual revenue for Q1 amounted to R635.071m, which is 11.6% higher than projected for the same period. Most depts over-collected when compared to Q1 projections • Projected actual own revenue shows that KZN will collect R18.456 million more than the amount budgeted for 12/13 • Only DEDT is projecting to significantly under-collect against its revenue budget at year-end. This is primarily due to revenue from Liquor licences not being realised as the dept has noted that fees in terms of the new Liquor Act will only come into effect when the current Liquor Act is repealed by Minister of DTI • Provincial Treasury makes up the larger part of the projected over-collection, due to higher than anticipated collection in respect of interest from the IGCC and PMG accounts

  26. Summary of Expenditure

  27. Summary of Expenditure • Table 7 reflects that total spending for Q1 was at 97.9%, which is 2.1% lower than projected, with 11 of the 16 depts showing lower than projected expenditure. In aggregate though, KZN seems to be on track having spent 23.6% of the annual budget during Q1, which is close to the straight-line benchmark of 25% for the same period • Aggregated projected expenditure for the year amounts to R84.196bn compared to the budget of R83.629bn, resulting in a projected over-expenditure of R566.608m at year-end • 6 depts are projecting to over-spend their 12/13 budget allocation, 2 depts project to under-spend, with all other depts projecting to break-even their budget allocations at year-end • The 6 depts that are projecting to over-spend at year-end are Education, Provincial Treasury, Co-operative Governance and Traditional Affairs, Transport and Public Works and are discussed in more detail below:

  28. Summary of Expenditure • Education is projecting to over-spend its budget by R503.102m at year-end. The bulk of the over-spending is projected against Prog 2, particularly Comp of employees. This over-expenditure is mainly due to the carry-through effects of shortfalls in funding for OSD for educators and various wage agreements dating back to 2008 (excluding 2011), conversion of teacher assistants to teacher aids, payment of rural allowances, and increase in stipends for ECD practitioners and hourly rate of ABET practitioners in 11/12 without funding, as previously explained • Transport is projecting to over-spend by R72m due to higher than anticipated claims on public transport subsidies relating to bus subsidies due to increases in fuel prices and hence, increased transportation costs. The dept’s contracts with the bus operators include an escalation clause linked to labour and fuel indices, among others and these are currently not covered by the Public Transport Operations grant • Public Works is projecting to be over-spent by R15.425m due to 3 projects where orders were placed but not received in time for payment before the end of 11/12 and for which a roll-over has been requested, but not yet approved. The projects are the Ixopo Office Park, the Southern regional office and the head office project

  29. Summary of Expenditure • Provincial Treasury is projecting to over-spend by R5.936m. The projected over-expenditure is mainly attributed to forensic investigation commitments not paid during 11/12, which are now required to be paid in 12/13 and payment toward the reconfiguration of office space. Also contributing, are payments incurred with regard to the upgrading of the Richards Bay airport and the payment of bursaries for non-employees as agreed to by Cabinet. The dept has requested a roll-over of funds in respect of 11/12 commitments which should cover this proj over-exp • Co-operative Governance and Traditional Affairs is projecting to over-spend by R5.1m due to the payment of 4 computer servers ordered in 11/12. The servers have been delivered, installed and paid for in Q1. The dept requested a roll-over of R5.2m in respect of these computer servers • Social Development is reflecting a projected under-spending of R34.880m due to expenditure on maintenance of buildings which has not been processed due to delays by Public Works. Also contributing to the under-spending are the delays in finalisation of SLAs with new NGOs due to strict application of Section 38(1)(j) of the PFMA

  30. Conditional Grants

  31. Conditional Grants

  32. Conditional Grants • Conditional grant allocation for KZN is projected to be over-spent by R25.580m, with only Education and Transport projecting over-expenditure at this stage • FET College grant under Education is projecting to over-spend by R29.744m due to the carry-through of the shortfalls in funding for the higher than anticipated wage agreements. Also contributing to this over-expenditure is the fact that FET colleges continue to offer two curricula simultaneously and these are under-funded by the grant • Projected year-end over-expenditure of R72m under Transport is against the Public Transport Operations grant and is due to higher than anticipated claims on public transport subsidies relating to bus subsidies due to increases in fuel prices and hence, increased transportation costs. The dept’s contracts with the bus operators include an escalation clause linked to labour and fuel indices, among others. These are not currently covered by the grant • The projected under-spending of R76.164m against NSNP due to the extension of contracts for service providers being signed before the new higher rate was communicated to the dept. As such, the allocation per learner per day remains at R2.15 and R3.05 instead of R2.18 and R3.08 for primary and secondary schools. Also, the payment for food handlers remained the same at R640 instead of R720 per 200 learners. The savings will be utilised to feed learners in quintile 4 and 5 schools

  33. Infrastructure

  34. Infrastructure • KZN is projecting to over-spend its infrastructure budget by R23.793m at year-end. KZN has spent 25.3% of the annual infrastructure budget at the end of Q1 which is slightly higher than the straight-line benchmark of 25% for the same period • 6 depts are projecting to over-spend at year-end while the others reflect a balanced budget • Spending against 4 depts (Agriculture, Environmental Affairs and Rural Development, Provincial Treasury, Health and The Royal Household) was higher than projections for Q1 mainly due to outstanding commitments from 11/12 which were paid for in Q1, such as the construction of a satellite mushroom base, transfers payments in respect of the upgrading of the Richards Bay airport which was due to be completed in 11/12 but could not be completed due unfavourable weather conditions, etc. Also contributing to the higher than projected spending was the faster than anticipated progress in various projects under Health, as discussed below • Provincial Treasury reflects projected over-spending of R6.013m due to payments incurred with regard to the upgrading of the Richards Bay airport, which was due to be completed in 11/12, but was delayed as a result of unfavourable weather conditions, as previously mentioned. The dept has requested a roll-over in this regard and, if approved, it will offset the projected over-expenditure

  35. Infrastructure • Health reflects projected net over-expenditure of R1.322m relating to the over-spending against New and replacement assets attributed to faster than expected progress at the Pomeroy and Dannhauser CHCs, as well as office and residential accommodation lease agreements being higher than initially forecast. Upgrades and additions project to over-spend as a result of increased costs for laundry and essential health technology equipment, King George V Hospital TB surgical out-patients project, as well as Ngwelezana Hospital for the upgrade electrical reticulation • Social Development reflects projected over-spending of R1.615m due to outstanding invoices from 11/12 from IDT, which will be processed in the current financial year. The department has requested a roll-over of funds from 11/12 in this regard • Public Works reflects projected over-spending of R14.737m due to commitments from 11/12, for which roll-overs have been requested. This includes the Ixopo Office Park, the Southern regional office and the head office project

  36. Cashflow Management

  37. Thank you

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