2012/13 Unaudited Close-out Budget Performance Report

1. 2012/13 Unaudited Close-out Budget Performance Report Presentation to the Select Committee on Finance 13 August 2013

2. Presentation Outline • Unaudited 2012/13 Provincial Budget Summary • Unaudited Provincial Own Revenue • Unaudited Budget Performance • Summary of provincial expenditure • Conditional grants • Infrastructure

3. 2012/13 Unaudited Outcome

4. 2012/13 Provincial Budget Summary

5. 2012/13 Provincial Budget Summary • The bulk of the provincial receipts relate to equitable share, contributing 79.7% of total revenue, with conditional grants at 17.2% and provincial own revenue making up the balance of 3.1% • The Unaudited actual shows that the province received R14.810bn conditional grant funding, which is a shortfall of some R14.636m when compared to the Final Appropriation • This is as not all grant funding in respect of the Land Care grant (R4.062m), Education Infrastructure grant (R9.999m), Mass Participation and Sport Development grant (R574 000) and the Dinaledi Schools grant (R1 000) was transferred to the province, due to identified slow spending by the depts • Worth noting is that a Second Adjustments Estimate was tabled on 26 March 2013 relating to an amount of R175.523m in respect of the Education Infrastructure grant which was re-allocated from Limpopo due to poor spending in that province • Although not included in the Second Adjustments Estimate due to late receipt of the notice from National Treasury, the Devolution of Property Rate Funds grant and the Mass Participation and Sport Development grant were to be reduced by R120.489m and R574 000, respectively, due to over-provision in respect of property rates and a decision by the National Deptof Sport and Recreation to re-allocate funds to the Northern Cape

6. 2012/13 Provincial Budget Summary • The province over-collected against provincial own receipts, collecting R2.671bn compared to the budget of R2.339bn • This over-collection of R331.645m is discussed in more detail later • The actual receipts for 12/13 amounted to R86.019bn compared to the Final Appropriation of R85.803bn, resulting in a surplus of R216.844m • The Unaudited actual provincial payments amount to R85.643bn, of which Current payments is the largest proportion at 78%, followed by Transfers and subsidies at 12 per cent and Payments for capital assets at 10% • The surplus at the end of 12/13 amounts to R1.756bn and results from the following: • The province budgeted for a surplus of R900m in 12/13 • The province under-spent its budget allocation by R539.194m in aggregate • The province over-collected its own revenue when compared to the Final Appropriation by R331.645m • Mitigating this, to a lesser extent, is the fact that National Treasury did not transfer R14.636m in respect of the Land Care grant, Education Infrastructure grant and Mass Participation and Sport Development grant, as mentioned

7. 2012/13 Provincial Budget Summary • The surplus is different from the year-end under-expenditure reflected in Tables 4 and 5 of this summary, as it takes into account the actual revenue received by the province, the over- and under-spending by provincial depts, as well as the budgeted surplus • The Committee is reminded that the budgeted surplus results from not allocating the full equitable share allocation to depts for spending and, as such, this has the effect of increasing the province’s aggregate year-end surplus

8. Provincial Own Revenue

9. Provincial Own Revenue • The aggregated Unaudited revenue collected by the provincial deptsamounted to R2.671bn compared to the Final Appropriation of R2.339bn, resulting in a substantial over-collection of R331.645m or 14.2% • The deptslargely responsible for this over-collection are Transport, Provincial Treasury, Health, Office of the Premier and Education • Counter-acting this over-collection is fairly significant under-collection by Economic Development and Tourism • Transportover-collected by R106.415m, largely due to higher than anticipated applications for new and renewals of motor vehicle licences, improved registration in respect of classification of vehicles such as abnormal and special vehicles, as well as higher than anticipated increase in applications for learners’ and drivers’ licences • Provincial Treasury over-collected against their own receipts budget by R84.965m in respect of interest earned on the Inter-Governmental Cash Co-ordination (IGCC) and the Pay Master-General (PMG) accounts

10. 26 • Health reflects year-end over-collection of R53.222m, mainly due to the unanticipated sale of redundant vehicles against Sale of capital assets, as well as the higher than anticipated collection of patient fees resulting from the Treasury led initiative to collect all patient fees due, and boarding services • Office of the Premier over-collected by R44.443m against their revenue budget, largely in respect of Casino taxes mainly due to increased monitoring systems implemented by the KZN Gaming and Betting Board (KZNGBB), and increased consumer activity, which cannot be accurately predicted • Education over-collected by R27.993m, mainly due to higher than anticipated recovery of outstanding staff debts and clearing of stale cheques • Economic Development and Tourism, on the other hand, under-collected by R38.138m. This is largely due to the low collection of revenue from Liquor licencesdue to certain portions of the KZN Liquor Licensing Act not coming into operation until 2012, as the deptis awaiting the repeal of the current Act by the Deptof Trade and Industry. 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

11. Summary of Provincial Expenditure

12. Summary of Provincial Expenditure • The aggregated expenditure for the year amounts to R85.643bn, compared to the Final Appropriation of R86.183bn, resulting in under-spending of R539.195m • While the province ended the year with under-expenditure, it is worth noting that Compensation of employees was over-spent by R432.522m due mainly to Education and the carry-through effects of the shortfall in funding for OSD and various wage agreements, as well as the carry-through effects of the conversion of 600 teacher assistants to teacher aids and provision for rural incentivised posts (such as Mathematics and Science), which were made in 11/12 without funding • The Unaudited year-end under-expenditure is an improvement when compared to 11/12, where the province showed over-expenditure of R311.795m • Three depts over-spent their budget at year-end, with the most significant by far being Health, at R99.602m, followed by Transport at R6.514m and the Provincial Legislature at R1.971m • Other thirteen depts under-spent at year-end, with several depts reflecting fairly minor under-spending

13. Summary of Provincial Expenditure • Health showed the most significant over-expenditure of R99.602m, which was largely due to faster progress than originally expected, as well as higher than expected costs on some infrastructure projects including the Dr Pixley Ka SemeHospital (groundworks), the Pomeroy and DannhauserCHCs, as well as the KZN Provincial Laundry. Also contributing were higher than expected costs of forensic investigations, audit fees, subsistence and travel costs, closing the gap in standards for municipal clinics that have been provincialised, progressive commissioning of CHCs and the King Dinizulu Hospital, and the increased demand for various “non-negotiable” items such as medicines, blood transfusions, etc • Transport over-spent by R6.514m due to the commencement of the Mahlabathini gravel roads, Umzimkhulwana River bridge, Main road P728 in Ugu and the Main road P700 in Ulundi and Empangeni that were put on hold in 11/12 to offset unbudgeted expenditure relating to the reconstruction of roads damaged by heavy rainfall in December 2010 and January 2011 in the Ladysmith area. Also contributing were the higher than anticipated claims on public transport subsidies relating to bus subsidies due to increases in fuel prices and, hence, increased transport costs

14. Summary of Provincial Expenditure • Provincial Legislature reflects over-spending of R1.971m. However, the Statutory Amount (i.e. Members’ remuneration) was under-spent by R2.938m due to an over-provision in the baseline. As the statutory amount is not appropriated, these savings cannot be utilised by the Legislature to offset over-spending in respect of the operational budget. As such, if the under-expenditure in respect of the Statutory Amount is excluded, the year-end over-expenditure in terms of the operational budget is R4.909m. The main reason for over-spending is the fact that the installation and implementation costs of the SAP Enterprise Resource Planning (ERP) system were far higher than anticipated • On the other hand, Public Works shows significant under-spending of R219.325m. The bulk of this under-expenditure was due to: • R148.657m, mainly from the over-provision for the payment of municipal property rates in respect of the Devolution of Property Rate Funds grant (R120.489m), and delays in payments for additional property rates to eThekwini Metro (R28.168m) due to disputes on the ownership of some properties • The balance of the under-spending of R70.668m is due to delays in the GIAMA project due to slow tender processes to acquire service providers with appropriate capacity, delays in filling vacant funded posts and delays in the procurement and development of the Fixed Asset Management Tool for property management which was put on hold by National Public Works

15. Summary of Provincial Expenditure • Economic Development and Tourism reflects year-end under-expenditure of R103.837m. This was caused by an audit adjustment of expenditure relating to the MTV Awards (R36.212m) and the Top Gear Festival (R15.896m) which were deemed to be prepayments as the events will be held in 13/14. Further to this, there was also under-spending on funds which were specifically and exclusively appropriated, such as: • Metro FM Awards (R1.227m) • Women’s Golf Championship (R9m) • Ezemvelo KZN Wildlife for the Bhambatha/Ngome Lodge (R4.500m), • Challenges in filling of vacant but budget posts. • If this under-expenditure in respect of ring-fenced funds is taken into account, then DEDT’s actual under-expenditure decreases to R10.102m which can be ascribed to delays in finalising SLAs and SCM processes for projects such as Fresh Produce Mentorship, Technical Skills Operation Vuselela, mentorship for cleaning and sewing co-operatives and Umyezane Awards

16. Summary of Provincial Expenditure • Provincial Treasury reflects year-end under-spending of R94.895m, partly resulting from: • The non-filling of vacant funded posts due to a lack of suitably qualified candidates • Delays in the receipt of invoices in respect of various projects, including Municipal Support Programme (MSP) projects, Infrastructure Crack Team projects, as well as the Prince Mangosuthu Buthelezi and Richards Bay airports • Delays in the approval by the municipality of the new Airport Master Plan (which relates to the extension of the Pietermaritzburg airport) and EIA for this airport • Delays in the appointment of service providers by the Greater Kokstad Municipality for the Shayamoya Eco-complex, and delays in obtaining Council approval for the newly identified site for the development of a light industrial park at Bhongweni in the Greater Kokstad Municipality • Education reflects year-end under-spending of R84.578m, which is a complete turnaround from the projected over-expenditure reflected throughout the year, due to cost-cutting against Goods and services items. The year-end under-expenditure is even more noteworthy, considering that Compensation of employees was over-spent by R507.874m at year-end. In this regard, it is clear that the cost-containment strategy, which was fully implemented by the dept in 12/13 to control spending against personnel, was largely a success, as indicated by the significant reduction in Compensation of employees spending pressures, from R1.449bn incurred in 11/12 to R507.874m in 12/13. This under-spending is mainly due to cost-cutting, delays in the procurement of dictionaries as the bids fell through and NSNP (March invoices)

17. Summary of Provincial Expenditure • Social Development shows year-end under-spending of R76.760m partly due to slower than anticipated progress in filling vacant posts due to lengthy recruitment procedures. Also contributing to the under-spending were delays in procurement processes between the dept and Public Works resulting in delays in repairs and maintenance projects, as well as the extension of infrastructure projects completion dates by IDT due to a value for money audit, which was commissioned by the dept in March 2012 • The objectives of this audit were, among others, to assess all infrastructure projects undertaken by IDT, conduct a cost analysis, determine value for money and assess compliance with industry best practices • Community Safety and Liaison reflects under-spending of R25.442m, partly due to delays in the filling of vacant posts as a result of the revision of the departmental structure in preparation for the implementation of the Civilian Secretariat for Police Service Act, savings on leasing of district offices and the discontinuation of the dept’s call centre

18. Summary of Provincial Expenditure • Sport and Recreation reflects under-spending of R20.012m due to delays in the implementation of the revised organisational structure, which resulted in the non-filling of vacant posts, challenges experienced by some municipalities in completing the construction of sport facilities and delays by Public Works in submitting invoices for the Ugu district office. Also, there were challenges in finding a suitable service provider for the construction of the Sisonke district office • Office of the Premier reflects year-end under-spending of R11.718m due to delays in the procurement processes for the renovation of the Premier’s Parkside residence (R5.701m) and delays in the establishment of the Rural Development co-ordination unit (R2.500m). In addition, only R5.175m of the R8.485m earmarked for the Zimele Developing Community Self-Reliance Project was paid, as the contract was only signed in March 2013. Funds (R10m) earmarked for the Training Academy were not used as Academy facilities were reclaimed by Education • Agriculture, Environmental Affairs and Rural Development reflects year-end under-spending of R5.008m, largely due to the late delivery of fencing material under the Land Care conditional grant programme. Stipends could not be paid by year-end due to inadequate time to install the fencing

19. Summary of Provincial Expenditure • Royal Household reflects year-end under-spending of R3.968m, of which R3.466m relates to under-spending against funding that was specifically and exclusively appropriated for the renovation and refurbishment of palaces • Co-operative Governance and Traditional Affairs (COGTA) shows year-end under-spending of R1.577m due to delays in the payment of leave gratuities, as well as the non-filling of vacant posts as a result of the high volume of vacant posts • Arts and Culture and Human Settlements reflect minimal year-end under-expenditure of R113 000 and R49 000, respectively

20. Conditional grants

21. Conditional grants

22. Conditional grants • The conditional grant allocation for the province was under-spent by R285.691m at year-end • The following grants show under-spending: • Devolution of Property Rate Funds grant reflects under-spending of R148.657m due to over-provision for municipal property rates and delays in invoices from municipalities such as eThekwini Metro due to disputes on property rates. A roll-over of R28.168m i.r.o disputed invoices has been approved by NT • National School Nutrition Programme grant reflects under-spending of R93.870m relating to invoices from service providers for March 2013 which were received too late to be paid in 12/13. A roll-over of R93.515m has been approved by NT • National Health Insurance grant reflects under-spending of R15.885m due to invoices received too late for payment in 12/13 and late delivery of medical equipment such as BP machines, cholesterol machines, diagnostic sets, etc. A roll-over of R14.949m has been approved by NT • FET College Sector grant reflects under-spending of R13.563m due to late processing of the transfer of funds to two colleges. No roll-over was requested in this regard

23. Conditional grants • Technical Secondary Schools Recapitalisation grant reflects under-spending of R9.315m due to delays in the delivery of machinery and equipment such as computers, data projectors, lathe and milling machines, some of which were ordered from abroad. A roll-over of R3.866m has been approved by NT • Land Care grant reflects under-spending of R4.963m due to the late finalisation of the procurement process relating to fencing material and nurseries. The dept requested for these funds to be rolled over to 13/14 and NT has not yet finalised the approval of the roll-over • AFCON 2013: Medical Services grant reflects under-spending of R1.328m due to lower than anticipated demand for medical services during the tournament • Social Sector EPWP Incentive Grant for Provinces (Community Safety and Liaison) reflects under-spending of R881 000 due to late appointment of the new Voluntary Social Crime Prevention Programme (VSCPP) recruits due to the dept having to undertake security checks and approvals by local bodies, such as local municipalities and councillors • Mass Participation and Sport Development grant reflects under-spending of R574 000, being the funds re-allocated by the National Dept of Sport and Recreation to Northern Cape, following revised allocations by the National Dept of Sport and Recreation

24. Conditional grants • Dinaledi Schools grant reflects under-spending of R468 000 due to delays in payment for invoices for services provided such as catering for learners • EPWP Integrated Grant for Provinces reflects under-spending of R105 000 under Education due to delays in the commencement of projects, such as minor maintenance to schools, due to longer than anticipated procurement processes • The following conditional grants reflect over-expenditure: • The Comprehensive HIV and AIDS grant reflects over-expenditure of R1.285m due to the increased financial burden in respect of anti-retroviral medicines • The Public Transport Operations grant reflects over-expenditure of R598 000 due to higher than anticipated claims on public transport subsidies relating to bus subsidies due to increases in fuel prices and hence, increased transport costs • The Hospital Revitalisation grant reflects over-expenditure of R62 000. • The Community Library Services grant reflects minimal over-expenditure of R14 000 due to higher than anticipated internet connectivity costs in libraries

25. Infrastructure

26. Infrastructure • The table indicates that the province under-spent its infrastructure budget by R125.124m at year-end, against the Final Appropriation • Four depts over-spent their infrastructure allocations as follows: • Transport over-spent by R12.813m due to commencement of the Mahlabathini gravel roads and Umzimkhulwana River Bridge projects which were put on hold in 11/12 to offset unbudgeted expenditure in that year which resulted from the reconstruction of roads damaged by storms in December 2010 and January 2011 • Health over-spent by R6.402m due to faster than expected progress at the Dr Pixley Ka Seme Hospital, Pomeroy and Dannhauser CHCs, as well as faster than anticipated progress on the KZN Provincial Laundry • Arts and Culture over-spent by R3.565m due to lengthy SCM processes, as well as variation orders in respect of the Qhudeni library, and renovations to the Language Services building • COGTA over-spent by R136 000 ascribed to claims amounting by Human Settlements for projects relating to the construcution of houses for Amakhosithat were completed on behalf of the dept in previous years

27. Infrastructure • Nine depts under-spent their infrastructure allocations as follows: • Social Development under-spent by R46.832m due to: • Delays in submission of invoices by implementing agents, Public Works and IDT, for maintenance of buildings and construction of service offices and one-stop development centres • The extension of completion dates by IDT due to the value for money audit (initiated by the dept to verify whether the work done meets the required standards) • Education reflects under-spending of R36.515m, mainly due to enforced savings in respect of administrative buildings and circuit offices to offset spending pressures i.r.o Comp of employees

28. Infrastructure • Provincial Treasury reflects under-spending of R26.851m due to: • Delays in the upgrading of the Pietermaritzburg airport brought about by the delays in the approval of the Airport Master Plan and the EIA • Slow spending on the Shayamoya Eco-complex due to the MOU only being signed in the third quarter • Delays in the light industrial park at Bhongweni resulting from the objection by the communities adjacent to the site which had been identified for the development. An alternative site was identified and Council approval was received only in March 2013 • Public Works reflects under-spending of R19.742m due to slow progress in the upgrading of its head office resulting from the project commencing later than anticipated due to sub-division issues still to be finalised with the local municipality. The tender was awarded later than anticipated resulting in delays in the commencement of the project

29. Infrastructure • Sport and Recreation reflects under-spending of R8.138m due to: • Delays in the submission of invoices for the construction of Ugu district offices by the Public Works • Challenges in finding a suitable service provider for the construction of the Sisonke district offices • The non-completion of the construction of sport fields by the dept such as Shayamoya, KwaDukuza and Mbazwana sport fields • The Office of the Premier reflects under-spending of R5.701m relating to the delays in the renovations to the Premier’s Parkside residence • Royal Household reflects under-spending of R3.466m due to delays in the refurbishment of the Ingwavuma palace due to poor performance by the appointed contractor which resulted in the tender being re-advertised • Provincial Legislature reflects under-spending of R531 000 due to delays in infrastructure projects such as upgrading toilets and revamping of the Speaker’s office, due to delays in obtaining approval from Amafa to continue with the upgrades

30. Thank You