Media Statement by Free State Finance MEC Seiso Mohai, 17 October 2011

Good morning ladies and gentlemen of media:

I have called this media conference to talk with you about the current state of public finances in the Free Sate Provincial Government, within the scope of the mandate of the Provincial Treasury. This discussion I’m going to have with you today should be located within the context of improving service delivery and stimulating economic development in the Free Sate which are the main objectives of the current Government’s Programme of Action.

I’m going to particularly address fours issues in this media statement: (1) Current Status of Provincial  Government Expenditure, (2) Revenue Enhancement Strategy, (3) 2010/11 Audit Outcomes and (4) Support to Municipalities in Free Sate.

Current Status of Provincial Government Expenditure

The 2011/12 total Provincial Budget allocation is R23.188 billion. Seventy Eight percent (78%), which is R18.212 billion in rands, is from the Equitable Share and 21.5%, R4.976 billion in rands, is defrayed from Conditional Grants. Provincial Own Revenue contributes 3% of the entire budget, in real term this amounts to R718 million in 2011/12. Social Development, Health and Education, the SHE Departments as we collectively refer to them, together account for 73.7% of the budget, which is R17.1 billion and other departments collectively share 26.3%, R6.1 billion in rands, of the total budget.

There is an improvement in terms of the current year spending as at 31^st August compared to the same period of the previous two financial years. As at end of August 2011, we were at 39% of expenditure. Whereas we were at lower performance during the two past financial years: 38% for 2010/11 and 35% for 2009/10 financial year.

Given the expenditure trends it is evident that the province can still break even at the end of the financial year.

The actual expenditure as at 31 August 11 is R9.1 billion (39.4%).The total projected expenditure is R23.774 billion against budget of R23.188 billion. The province projects to over spend the budget by 2.5%. And the following are the factors that influence this over- expenditure. Education projects to over spend by R228.2 million due to previous financial year commitments on infrastructure, Health by R147.6 million due to fast tracking of Ladybrand hospital project, Public Works by R165.3 million as a result of previous year expenditure commitments on property rates and taxes, Premier by R6.5 million and Social Development by R14.7 million as a result of compensation of employees due to absorption of Masupatsela Youth Pioneers.

As the Provincial Treasury we are concerned about this possible unauthorised expenditure emanating from over spending. We will therefore accordingly implement measures to prevent overspending.

The Legislature projects to over spend their budget by R12.2 million or 6.0% mainly on goods and services for consultants and professional service for the Legislature Complex.

I’m concerned that Infrastructure expenditure is below the norm; at 30% by the end of August 2011. The impression we have of this situation is that we have challenges on infrastructure planning because in some instances, there is not a strong relationship between budget planning and the execution of infrastructure projects. These are the matters that the September Provincial Government EXCO Lekgotla deliberated upon at length and thus remedial measures will be introduced accordingly.

Revenue Enhancement Strategy

The Provincial Revenue Enhancement Strategy, which was recently adopted by the Executive Council, seeks to achieve a R1 billion target in revenue collection and thus enable the Provincial Government to address better the provincial priorities. The adoption of this strategy follows debates in the province, over the recent years, on the overreliance of the province on the national budget transfers mainly in the form of Provincial Equitable Share and the Conditional Grants which together constitute 97 percent of the total provincial fiscal envelope.  

I’m delighted that a Provincial Revenue Enhancement Strategy is finally in place, following a commitment I made when tabling the 2011 Provincial Budget this past March. This Strategy constitutes a tool through which all the Government Departments and Entities in the Free State will implement measures by which they will increase their revenue collection. We will now systematically promote best practices with regard to revenue collection administration and discipline among the Free State Governments Departments and Entities. There will be a great deal of emphasis on efficiency and effectiveness for the utilization of the current revenue resources.

The strategy will therefore enhance revenue collection, strengthen existing control processes and create innovative ways for new revenue streams. It also seeks to protect the funding that is meant for revenue related projects, systems and key areas that need funding to increase revenue.

Five per cent (5 %) of the total provincially generated revenue budget will be allocated to the Revenue Enhancement Allocation. The purpose of the Revenue Enhancement Allocation is to ring-fence allocations for spending on revenue related projects and systems.

With regards to improving efficiency and effectiveness of the current systems, the strategy promotes the signing of financial agreements with collecting agents in ways that advance good value for money. The strategy therefore ensures that a cost-benefit analysis is conducted before appointing collecting agents and that such appointments should be performance based.

Reporting and monitoring of revenue performance will be used to detect poor performance leading to revenue under-collection in any department or entity so that it may be corrected well on time.

In addition to strengthening current controls, the Provincial Treasury is formalising the process that will stimulate improved cash management and improved returns on investment in the form of increased interest. 

The need for improved revenue collection and management cannot be overemphasized, particularly during these trying times in the sluggish performance of the economy nationally and globally.

2010/11 Audit Outcomes

The main achievement on 2010/11 audit outcomes is that the Provincial Treasury succeeded to maintain the clean audit opinion for the second time in successive years; 2009/10 was a clean audit for Provincial Treasury. The other part of our main achievement is that the department of the Premier also got a clean audit opinion. It is also an achievement that both the departments of Health as well as Police Roads and Transport improved from a disclaimer to a qualified audit opinion.

It is regrettable that the departments of Agriculture and Economic Development, Tourism and Environmental affairs regressed from an unqualified to a qualified audit opinion.

Some explanation on the clean audit opinion is necessary. The actual audit opinion is “unqualified with no matters” however in government the general term of clean audit is used. This means that the financial statements are prepared in all material respects, in accordance with the applicable financial reporting framework, presents fairly the financial position of the department and there is no finding on   other matters, non-compliance, governance matters as well as on predetermined objectives.

Summary of 2010/11 Audit outcomes

We have distributed copies of our Provincial Treasury 2010/11 Annual Report in order to give you the full picture of our performance in 2010/11.

Support to Municipalities in Free State

On the support we provide municipalities, let me start off by indicating that we are busy improving the organizational capacity of the Provincial Treasury to assist our municipalities better. We have advertised a Chief Director post and a Director for Municipal Budget Management and we will be appointing soon. Four newly appointed directors have already commenced working.  Over the next three years the number of staff in our unit of Municipal Finance Management will increase from 25 to 77.

We are improving our capacity on the main areas of our mandate as the Provincial Treasury with regard to municipal support. These areas of our work as the Provincial Treasury are: (1) Budgeting, (2) Accounting, (3) Revenue and Debt Management, (4) SCM and Compliance, and (5) Risk Management and Internal Audit.

In all these five areas we continue to provide support to municipalities that ranges from assessments and advice to training, information sessions as well as circulars. Our support to municipalities so far has proven to be very useful and is producing some better results in the performance of functions related to municipal finance. We also work jointly with the Department of Cooperative Governance and Traditional Affairs in certain instances.

We are working very hard to improve the capacity of Local Government so that the delivery of basic services to our communities can be enhanced.

Thank you.

Enquires
Gunnett Kaaf
Cell: 083 291 6622