STATE OF PROVINCIAL FINANCES NORTH WEST PROVINCE NATIONAL

STATE OF PROVINCIAL FINANCES: NORTH WEST PROVINCE NATIONAL TREASURY | 19 FEBRUARY 2021 1

OVERVIEW 1. Budget and Expenditure • Spending per department and economic classifications • Historical spending outcomes • Compensation of Employees and headcount • Conditional Grant spending 2. Cash Balances 3. Procurement Irregularities • Irregular, Fruitless and Wasteful as well as Unauthorised Expenditure 4. Infrastructure challenges; Health, Education and Public Works and Roads 5. COVID-19 Spending 6. Cost of intervention 7. Conclusion 2

BUDGET AND EXPENDITURE PER DEPARTMENT: 2017/18 TO 2020/21 • The Budget allocation for the Department of Health has consistently been increased as a percentage share of the Provincial budget from 26 per cent in 2016/17 to 28. 4 per cent in the 2020/21 financial year, excluding the COVID-19 funding. • Provincial spending have been stable with the majority of the departments recording slight underspending, except for Health which recorded overspending in the 2019/20 financial year. • Contributing to this underspending for the 2017/18 to 2019/20 financial years have been Health (2017/18), Education, Public Works & Roads, Agriculture & Rural Development, Office of the Premier and Human Settlements; due to Conditional Grant poor spending performance. • The province lost Conditional Grants allocations for the Department of Education amounting R 125. 373 million in 2018/19 and R 225. 621 million in 2019/20 and in Human Settlements amounting to R 100 million in 2020/21. The stopping of Conditional grant allocations reflect 3 poor planning and delivery on projects within the respective departments.

BUDGET AND EXPENDITURE PER ECONOMIC CLASSIFICATION, 2017/18 – 2020/21 • • The underspending was primarily registered under Goods & Services, since it accounts for 56. 58 per cent of the total underspending of R 3. 499 billion, followed by Payments for Capital Assets at 25. 05 per cent. Goods & Services underspending relate to items such as Contractors, LTSM, Transport provided, Inventory: Other Supplies, Property payments and Minor assets. 4

HISTORICAL EXPENDITURE OUTCOMES • Provincial underspending equals R 3. 499 billion for the 2017/18 to the 2019/20 financial years Increasing under expenditure registered from R 939. 919 million in 2017/18 to an amount of R 1. 526 billion for the 2019/20 financial year. • Conditional Grants contribute a share of R 1. 909 billion of 54. 56 per cent of the total underspending amount of R 3. 499 billion over the three years. • For the current 2020/21 financial year, the spending as at 31 December 2020 amounts to R 31. 211 billion or 68. 75 per cent. Provincial overspending of R 461 million has been projected based on the December 2020 IYM numbers, mainly from the Department of Health. 5

COMPENSATION OF EMPLOYEES, 2017/18 2020/21 • • Underspending on Compensation of Employees (COE) were mainly during 2017/18 and 2018/19. Provincial overspending on COE during 2019/20 was mainly from the Department of Health amounting to R 211. 632 million. Current year COE spending is recorded at 73. 12 per cent as at 31 December 2020, however departments project overspending, given the existence of PDMS Liabilities and salary adjustments that is yet to be concluded country wide. The percentage share of COE to the Provincial Budget grew from 57 percent in 2017/18 to 61 per cent in 2020/21, meaning that COE is slowly overcrowding other economic classifications like goods and services as well as infrastructure. 6

HEADCOUNT – 2016/17 – 2020/21 • • The provincial headcount numbers consistently increased over the years. Although the headcount numbers increased with 21 392 from 73 247 in 2016/17 to 94 639 for the 2020/21 financial year, this was mainly in respect of the Level 0 appointees totaling 13 249, which mainly relates to the EPWP workers and COVID-19 screeners and assistants, as well as appointments in the department of Health. 7

HEALTH: HEADCOUNT AND EXPENDITURE AVERAGE % CHANGE (2016/17 – 2019/20) 8

CONDITIONAL GRANT EXPENDITURE, 2017/18 – 2020/21 9

EIG CONDITIONAL GRANT ALLOCATION AND EXPENDITURE PER PROVINCE, 2017/18 TO 2019/20 10

NW – EIG MONTHLY SPENDING, 2017/18 TO 2019/20 11

CASH BALANCES, 2014/15 TO 2020 (31 DECEMBER 2020) • • • The cash balances have been positive for the past years and the main contributor being fixed deposit of approximately R 1 billion. Cash balance has increased from R 1. 1 billion to R 3 billion at the end of the financial year between 2014/15 and 2019/20 as departments fail to spent the budgets and interest is earned on positive PMG accounts. As at the end of December 2020, the province recorded the highest positive cash balance due to the lock down period imposed to combat COVID-19 pandemic. 12

Irregular, Fruitless and wasteful and unauthorised expenditure, 2017/18 to 2019/20 • • • Irregular expenditure disclosed in 2019/20 remained high at R 2. 9 billion; however, this is a decline of R 1. 2 billion from the previous year. This decline emanates from Health, Community Safety, Public Works and Roads and Education. Economic Development, Environment and Tourism, Office of the Premier as well as Social Development are the only departments reflecting and increase in regular expenditure. Fruitless and wasteful expenditure disclosed in 2019/20 shows an increase of R 6 million from the R 5. 3 million reported in the previous year. This increase emanates from Public Works and Roads, Social Development, Community safety and Office of the Premier. Unauthorised expenditure has increase from R 22. 2 million to 13 R 203. 7 million between 2018/19 and 2019/20 in the department of Health.

Irregular expenditure, from 2011/12 to 2019/20 • Since 2013/14, the provincial irregular expenditure is starting to realise a decline in 2019/20. • On average, 80 per cent of irregular expenditure emanates from OTP, Health, Education, Community Safety and Transport Management and Public Works and Roads. • Public Works and Roads and Education irregular expenditure peaked in 2018/19. • All five departments shows a decline in irregular expenditure in 2019/20. 14

Accruals and Payables • • Between 2017/18 and 2018/19, there have been an decline in accruals, however increase is notable in payables. A continuously increase in payables in the department of Health as well as high level of accruals, remain the biggest risk in the NW budget. An increase in OTP 2019/20 - not paying supplies. Community Safety and Transport Management – Improvement 2019/20 – Scholar transport contract. 15

Reasons for irregular expenditure , 2018/19 – 2019/20 Education • Tender not evaluated by Committee(R 254 Million) • Procurement more than contract amount(R 85 Million) Public Works and Roads • Contracts procured without following proper procurement processes (R 371 Million) • Expenditure incurred on contracts identified as irregular in the prior years(R 72 Million) Office of the Premier • Did not go through competitive bidding (R 19, 8 Million) Community safety and Transport Management • Scholar transport(R 1, 1 bn ) • Commuter transport (R 1, 3 bn) Health • DOH Contracts(R 1, 1 bn) • Deviations from competitive bidding process and expired contracts(R 7 07, 8 Million)

Health Financial management and supply chain management (SCM) challenges • Demand procurement plans are of poor quality, incomplete and have little alignment with approved budget and monthly cash flow projections. • Contract management is still weak and Contract Register still incomplete with little evidence of management of top suppliers. • Interfacing of PMIS to the National Treasury prescribed Infrastructure Reporting Model is distorting the reporting and planning of project implementation by the department. • Failure to complete planned projects within cost and time resulting in variation orders, extensions of time as well as failure to utilise facilities for intended purpose, i. e. Sekhing CHC, Bophelong Psychiatric Hospital. Overcommitted Health Infrastructure projects: • Brits Hospital (New accommodation for staff) Practical Completion and being occupied, Bophelong Psychiatric Hospital (New accommodation for staff) Practical Completion with outstanding Administration block (Phase 3 of the project), Sekhing CHC Construction, Boitekong CHC Final Completion and not yet operational, Mathibestadt CHC Construction, New Jouberton CHC Practical Completion, New Mmakaunyana Clinic Construction, New Madikwe Clinic officially opened in May 2019. 17

EDUCATION Governance challenges Emanating from the Education infrastructure performance over the years the following has been identified as key causes of poor infrastructure performance: • Non implementation and institutionalization of the Infrastructure Delivery Management System (IDMS) within the sector. • Non adherence to prescribed and best practice Infrastructure Delivery Management Processes • Inadequate compliance to the requirements for planning and performance for informed Education Infrastructure allocations. • Lack of Governance Structures resulting in poor programme/ project management (i. e. focus group meetings with Implementing Agents); • Credibility of information reported in the IRM, IYM and Vulindlela (i. e. no regular updates on project statuses, no budget projections on projects, project details not captured, Project Cost inaccurate, etc); • SCM Policy for infrastructure procurement and delivery management with delegations of authority still outstanding; • Some service providers leaving sites due to non/ late payment of invoices; 18

Public Works and Roads Governance • • The current structure of the department is not aligned to the Infrastructure Delivery Management System in terms of acquiring professional project managers and Civil Engineers expertise. Review of the organizational structure required in order to capacitate Public Works as an Implementer, custodian and property manager of the state as well as the requisite capacity for roads infrastructure. Progress on Property Management (Residential) Progress on the implementation of market related rental: • The EXCO took a decision that the market related rentals should be introduced on State Housing and the procedure to be followed in implementing this decision is as follows: • Implementation effective from 1 st April 2020 • SMS members: Monthly rental increased from R 1576. 00 to R 2576. 00 in the 2020/21 financial year and thereafter will increase by R 1000. 00 per year over the next three years. • Non - SMS Members: Monthly rental increased from R 900. 00 to R 1400. 00 in the 2020/21 financial year and thereafter will increase by R 500. 00 per annum over the next three years 19

Public Works and Roads- Infrastructure projects Public Works and Roads – completed projects in 2019/20 • Rehabilitation and Upgrading to dual carriageway of sections of Road P 28/4 from Mafikeng to Lichtenburg (Phase 2) at Mahikeng local municipality. • Rehabilitation, repair and reseal of Road P 152/1 from N 18 at Setlagole to P 34/4 in Delareyville 58 km Phase 1 (20 km) at Ratlou local municipality. • Patchwork, rehabilitation and reseal of sections of roads D 414 from Dinokana to Gopane at Ramotshere Moiloa municipality. • Re-gravelling of road D 1010 from Leeuwfontein to Ramokgolela at Moses Kotane municipality. Key strategic projects to be completed in 2021/22 financial year • • • Rehabilitation of Road D 201 from Pampierstad to Kgomotso(13, 3 km). Rehabilitation of Road P 34/5(R 506) from Schweizer-Reneke to Christiana (89 km) at Mamusa local municipality. Upgrading of road D 634 as well as low level bridge construction from Swartdam to Jonathan (5 km) at Moretele local municipality. Upgrading from gravel to surface standard of road D 402 through villages of Manamolela to Deelpan to Kopela (23 km). Phase 2 (16 km) at Tswaing local municipality. Construction of Perimeter Wall at Delareyville Workshop (Phase 2) at Tswaing local municipality. New Madikwe Sub-District Office at Moses Kotane local municipality. 20

COVID-19 Allocations 21

COVID-19 SPENDING ON THE PROCUREMENT OF PPEs • The expenditure for the period August 2020 to 31 December 2020, which includes procurement on PPEs, social relief of distress programme and quarantine sites. • Provincial Departments and Public Entities COVID-19 spending as at 31 December 2020 is at R 195. 2 million. • Notably, COVID-19 spending for some departments and entities will remains relatively the same as compared to frontline departments like Health Social Development and Education. • Social Development spending on Food parcels average cost ranged from R 1 641. 11 to R 2 094, 30 per beneficiary. This was among the highest in the country. 22

Costing the intervention • The deployment of administrators and support teams is funded through existing national departmental budgets (with the exception of security services for intervention team from Do. H which is funded from the province. ) • As at end October 2020, the total costs incurred by national departments intervening under section 100(1)b) were calculated to be R 70, 1 million. • This includes compensation of people contracted specifically for the intervention, but excludes compensation for full-time departmental employees assigned the intervention teams. • The National Department of Health utilised an additional contribution of R 9, 75 million from donors to support specialist technical support to the National Department of Health in the province. • Forensic investigations managed by the National Treasury have cost R 15. 7 million. • The costs incurred by departments intervening under section 100(1)(a) have not been quantified, as these are considered to be part of the normal support work of 23 the national departments concerned.

Costs of intervening in the NW 2018 – 2020 Notes: • Compensation amounts excludes compensation for permanently employed staff • Goods and services spending includes travel, accommodation, S&T, security services 24

CONCLUSION It is recommended that the Committee notes: • The North West Province Financial position remains healthy even after some budget cuts to cater for COVID 19; • The costs incurred by national departments intervening under section 100(1)b) amounting to R 70, 1 million as at end of October 2020; • Improvements towards achieving budget credibility and increased funding for social sector departments like Health; • Slight reductions in annual recording of Irregular, Unauthorised, Fruitless and wasteful expenditure by departments under Section 100(1)(b) of the Constitution of South Africa; • That the National Treasury is concerned about poor performance on Conditional Grant spending by departments like Education, Public Works and Roads and Human Settlements; • Departments need to improve infrastructure (IDMS) governance structures and capacitate the SCM units; 25

. THANK YOU 26

ANNEXURES 27

HEALTH: FOOD AND CATERING • • • Provinces have elected different methods of providing food and catering services. Most provinces use a combination of insourcing and outsourcing, while Limpopo and Mpumalanga have outsourced all of their food and catering services. LP and MP costs are also lowest. NW highest 28

EDUCATION: EARLY CHILDHOOD DEVELOPMENT - EDUCATION FOCUSING ON GRADE R

NW EDUCATION: BUDGET AND EXPENDITURE FOR LTSM

NW SOCIAL DEVELOPMENT: FOOD PARCELS The Department is currently enlisting the services of service providers that were previously appointed (in January 2019) to supply and deliver food parcels to the Department. The average cost per food parcel is estimated at R 1 641. 11. The cost is all inclusive. Nos Name of Service Provider District Name Awarded Amount 1 World Focus Projects Ngaka Modiri Molema 1 693, 66 2 Mekgwe Mobile Shop (PTY) LTD Ngaka Modiri Molema 1 650, 00 3 RXD Logistics 9 Re Thusa Botlhe Catering & Cleaning 4 Services Ngaka Modiri Molema 1 862, 64 Dr R. S. Mompati 1 782, 68 5 6 7 8 9 Dr Dr Dr 1 1 1 Mabogo Dinku Enterprise & Projects DM Mega Enterprise Mojero Trading Blink Of Africa Group of Companies Matshota Trading Enterprise R. S. Mompati K Kaunda 782, 68 900, 00 830, 00 542, 15 10 Owabo Bonke Trading Projects Bojanala 1 750, 86 11 Perfect Girlz Bojanala 2 094, 03 12 Eddie Mosa Bojanala 1 772, 74

INFRASTRUCTURE BUDGET AND EXPENDITURE INCLUDING CONDITIONAL GRANT 32

INFRASTRUCTURE BUDGET AND EXPENDITURE 33

NORTH WEST COVID 19 SPENDING PER DEPARTMENT 34

HEALTH: TOP 20 PPES SUPPLIERS 35

HEALTH: PPE ITEMS, QUANTITY AND SPENDING – BETWEEN AUG AND OCT 2020 36