Report of the Select Committee on Appropriations on the third quarter conditional grants’ spending patterns on Community Library Services Grant for the 2009/10 financial year, dated 01 June 2010.

1. Introduction

The Select Committee on Appropriations (the Committee) invited nine provincial departments of arts and culture that were either under-spending or over-spending on the Community Library Services Grant to make a presentation on their third quarter spending in the 2009/10 financial year. The statistics on spending patterns were published by the National Treasury in March 2010.

The Committee’s meeting took place on 19 May 2010 and was held in Committee Room E249 at Parliament.

2. Terms of reference

The public hearings formed part of the Committee’s ongoing interaction with provinces to monitor their spending patterns on conditional grants allocated to them. A framework for the grant sets out, among other things, the purpose of the grant, measurable objectives, conditions, allocation criteria and past performance.

Provincial departments of arts and culture were requested to make a presentation on the Community Library Services Grant and to take the following into consideration:

• Data trends in allocations, transfers and actual expenditure of conditional grants of the department;
• Assessment of the department’s monitoring capacity for the financial year 2009/2010, indicating under/overspending and capacity constraints that impacted on these outcomes;
• Report whether monthly reports are received from receiving departments or municipalities and, if not, what the departments are doing in order to ensure compliance with monthly reporting; and
• Medium term strategic plans.

The provincial departments of arts and culture in the Western Cape, Limpopo, Eastern Cape, Gauteng, KwaZulu Natal, North West, Free State and Northern Cape were identified and invited to participate in the hearings. All the provincial departments, except Mpumalanga, honoured the invitation.

The National Treasury was invited to brief the Committee on the third quarter spending of the above-mentioned provincial departments.

3 Presentations

3.1 National Treasury

The National Treasury reported that the adjusted budget for the third quarter of the 2009/10 financial year was R461 million and the total projected outcome was R444 million. The National Treasury added that the provincial departments of arts and culture had spent R281 million (61 %) at the end of the third quarter. Only the Northern Cape’s Department of Arts and Culture had a projected over-spending of R9 million. The National Treasury further reported on two provincial departments of arts and culture that had a projected under-spending totalling R26.7 million (that is, R25.3 million for the Eastern Cape and R1.4 million for Gauteng).

The National Treasury reported that the Community Library Services grant had been increased by 30 per cent from R338 million in the 2008/09 financial year to R440.6 million in the 2009/10 financial year. The National Treasury reported that some of the provincial departments of arts and culture transferred a significant portion of their budgets to municipalities (eg Gauteng transferred 84%). Some provincial departments of arts and culture had spent significantly on capital assets such as library buildings, information communication and technology (ICT) infrastructure (namely 63% for Mpumalanga, 49% for Northern Cape and 46% for Limpopo). The National Treasury commented that, in general, the most significant focus area for spending was on goods and services (e.g. library books). However, the National Treasury noted that co-ordinating municipal planning and project execution appeared to be one of the challenges facing the provincial departments of arts and culture. The National Treasury furthermore pointed out that the need for upgrading ICT infrastructure was of significance in many provinces, and that the provincial departments of arts and culture were affected by supply chain management’s delays and challenges and only 77% or less of the capital budgets for any provincial department of arts and culture had been spent as at 31 March 2010.

3.2 The Province of the Free State

The Free State’s Provincial Department of Arts and Culture (PoFS) reported that it was allocated R40.3 million and the actual spending at the end of the third quarter was R20.6 million (51%) at the end of the third quarter of the 2009/10 financial year. The PoFS highlighted that ICT infrastructure, equipment and networks were installed at 45 of the 59 targeted libraries. The PoFS presented that there was a delay with delivery of equipment and the installation of networks in Philippolis due to the failure of a contractor to deliver these services. The PoFS added that the State Information Technology Agency (SITA) had to appoint a new contractor to offer such services. The PoFS reported an under-spending by R8.9 million because of the late installation of networks and delays by SITA in invoicing for data lines. With regard to goods and services the PoFS reported that underspending on furniture and equipment was due to over-budgeting for maintenance and late invoicing.

The PoFS reported that underspending was caused, among other things, by the following: delays in recruitment and appointment of librarians; procurement challenges; the Free State’s Provincial Treasury directives on the arrangement of new contracts; and the late or non-delivery of orders for library materials. The PoFS informed the Committee that plans were in place to address these shortcomings. These plans include obtaining approval to amend the committee’s business plan in order to redirect underspent funds to other projects and to obtain approval from the Free State’s Provincial Treasury to deviate from directives. Furthermore, the PoFS reported that it intended to appoint an infrastructure manager to assist the Department of Public Works with infrastructure contracts and improve the monitoring of infrastructure projects.

The PoFS further reported on its intention to enter into a Service Level Agreement with the Department of Public Works and the Department of Rural Development and Land Reform, to expand the database of suppliers of library materials (to have alternative suppliers) and to strengthen the management capacity in the Library Services Directorate by filling two vacant posts of deputy directors.

With respect to monitoring capacity, the PoFS reported that it had a Financial Control Committee and that spending was monitored by the Chief Financial Officer. The PoFS further reported that finance, supply chain management and human resources clerks were appointed in line with the Community Library Services Grant to focus on grant commitments.

It was further reported that a good reporting system had been established because quarterly reports were submitted to the National Treasury through the Free State’s Provincial Treasury. In-year monthly reports, together with monthly progress and evaluation reports, were also submitted.

3.3 The Province of the Eastern Cape

The Eastern Cape’s Provincial Department of Arts and Culture (PoEC) reported that it had an approved budget of R55.5 million. The PoEC said that, at the end of the third quarter, it had committed R6.3 million but the actual spending was R30 million.

The PoEC argued that the major contributing factor to under-spending was non-construction of a new library in Mount Ayliff due to challenges in the capturing of an infrastructure budget in the National Treasury infrastructure documents. It also reported on the non-appointment of 12 librarians as this action was dependent on the completion of renovations to the library. Procurement of ICT equipment was delayed; the purchasing of container libraries was put on hold due to tender discrepancies; non-payment of stipends to trainers who were responsible for literacy programme; shifting of maintenance of the ICT budget to provide for datalines in public libraries was delayed by the Premier’s Office and SITA. Furthermore, the PoEC reported that there was a lack of credible service providers for training library workers.

The PoEC reported a number of achievements that included the procurement of a server that will link all libraries and the provincial office; the installation of CCTV security systems in 14 libraries; 35 libraries had been cabled; 20 libraries had been installed with datalines; and all library materials had been purchased (but were not yet received).

The PoEC explained that monitoring and administration of the grant was centralized in one office. The PoEC explained that a project manager, core staff and three network controllers were appointed.They work together with SITA in all ICT projects based at the provincial office. The PoEC reported that local municipalities supported the deployment of staff in community libraries. The user and circulation statistics at community libraries were monitored by both municipalities and district offices.

The PoEC reported challenges, namely delays in the implementation of projects by SITA and the Department of Public Works’ and the classification of renovation projects as incubators and not priority projects by the Department of Public Works.

The PoEC concluded that the Constitutional arrangements for delivery of library services still remained a challenge. The PoEC said that its spending was supposed to be at 75% of the adopted budget but the actual spending was at 54%. When combining commitments and actual spending as in the third quarter, the PoEC had spent 66% at the end of the third quarter and projected spending of 91% at the end of the 2009/10 financial year.

3.4 The Province of Limpopo

The Limpopo’s Provincial Department of Arts and Culture (PoL) reported that, for Community Library Services grants, it had spent R36.7 million (60%) against a budget of R61.3 million as at the end of December 2009.

The PoL reported that its budget, as adopted, was increased from R23 million in the 2007/08 financial year to R43 million for the 2008/09 financial year. A further increase from R43 million in the 2008/09 financial year to R55 million in the 2009/10 financial year had been effected. This allocation had been increased to R63 million for the 2010/11 financial year. The PoL said that the difference of R5.4 million in 2008/09 and R5.4 million in 2009/10 was effected as a result of roll-overs received from the National Department of Arts and Culture.

The PoL reported that spending in the Community Library grant increased from R17 million in the 2007/08 financial year to R40 million in the 2008/09 financial year. The PoL reported that its Community Library grant was further increased from R40 million in the 2008/09 financial year to a projected R61.3 million in the 2009/10 financial year. The PoL said that the projected spending for the 2010/11 financial year is R63 million. The PoL reported that spending was projected to increase by 53% between the 2008/09 and 2009/10 financial years and by 2% between the 2009/10 and 2010/11 financial years.

The PoL reported that the contributing factor to under-spending included the incapacity of contractors to deliver on infrastructure projects, e.g. a delay in the construction of Fetakgomo Library and the maintenance of Marble Hall Library; a delay to build the Ga-Phahla Library due to disputes; inadequate co-ordination of projects in collaboration with the implementing agent and the Provincial Department of Public Works; the PoL’s inadequate capacity for project management and monitoring, and the lack of adequate technical skills which causes it to rely on third parties for the implementation of its infrastructure projects.

The PoL reported that its intention to improve the monitoring of capacity by acquiring technical assistance and improving communication with the implementing agent. A Steering Committee and Library Forums were to be established and co-ordinated by the provincial office.

3.5 The Province of Western Cape

The Western Cape’s Provincial Department of Arts and Culture (PoWC) reported that it was in partnership with the local municipalities which served as implementing agents for projects. Memoranda of agreement had been signed with 28 municipalities for the implementation of projects that include staffing of public libraries, literacy projects and maintenance or the upgrading of projects. The PoWC added that it signed a memorandum of understanding with municipalities with regard to the implementation of the Rural Library Connectivity Project and Information and Communication Technology (ICT) projects.

The PoWC reported that its total budget for the 2009/10 financial year was R41 million. At the end of the third quarter its actual expenditure was R21.1 million (51.6%) and the projected outcome was R41 million (100%) as at the end of the third quarter. The PoWC presented that R31.4 million (76.6%) of the provincial allocation was spent on the appointment of additional staff, literacy programmes and the maintenance and upgrading of projects. Furthermore, centrally-managed projects include the establishment of mobile book trolleys, the purchasing of library material, a Rural Library Connectivity Project and grant management.

The PoWC reported that reasons for under-spending included delays by suppliers to deliver mobile book trolleys and library material; the cost of ICT equipment and mobile book trolleys were less than budgeted for, and cost savings were spent on books during the fourth quarter.

The PoWC reported that its monitoring function was performed through scheduled official site visits and a total of 1 478 monitoring visits were undertaken in the 2009/10 financial year. All the municipalities submitted their costed business plans together with signed memoranda of agreement. Monthly Finance Focus meetings were held to monitor spending on conditional grants.

With regard to compliance with monthly reporting, the PoWC presented that monthly expenditure reports were submitted on a standard template designed to provide information that is required for analysis. The PoWC added that standard follow-up procedures were used to ensure that reports had been received. The PoWC reported that monitoring visits to non-compliant municipalities, as well as those that requested assistance, were undertaken. Formal requests were made to non-compliant municipalities when these reports were not submitted. The PoWC also reported that it had spent 100% of its grant by the end of the financial year.

3.6 The Province of Northern Cape

The Northern Cape’s Provincial Department of Arts and Culture (PoNC) reported that its final appropriation for the 2009/10 financial year was R69.4 million and the actual amount spent was R57.5 million. The PoWC reported a variance of R11.8 million and spending expenditure as a percentage of final appropriation of 83%.

The PoNC reported that reasons for under-spending by R11.8 million included current payments amounting to R1.8 million and library material that was procured through tender processes but were not delivered in full. The PoNC reported that a rollover of R1.5 million was requested. Furthermore, a transfer of an amount of R106 000 was withheld from one municipality because it did not comply with transfer’ requirements. A further amount of R9.8 million was meant for the construction of two of the three new libraries which could not be completed by the end of 2009. It was reported that these projects would be completed in July 2010 and a rollover of R9.8 million was requested for the completion of infrastructural development.

The PoNC reported that its 2009/10 business plan provided for service delivery in rural areas; the implementation of a digital library service system in six sites; promoting library usage and reading promotion programmes; the construction of three new libraries; training staff on library services symposium; transferring funds to municipalities; and for the maintenance of information technology (IT) infrastructure at 86 points.

With respect to the monitoring of transfers, the PoNC reported that heads of libraries at community level were trained on transfer requirements and the monitoring of transfers. Municipalities were also expected to submit monthly reports. These reports covered library usage and programmes, business plan rollouts and the challenges that were experienced.

The PoNC reported that challenges in the supply chain management’s tender process for the procurement of library material was, amongst other things, contributing towards under-spending. It concluded that library material was not delivered on time for distribution within the financial year.

3.7 The Province of Gauteng

The Gauteng’s Provincial Department of Arts and Culture (PoG) reported that it was allocated R46 million plus a rollover of R1.7 million in the 2009/10 financial year. In total, its adjusted budget for the financial year was R47,7 million. The PoG reported that it received R40.8 million from the National Department of Arts and Culture and an amount of R45.5 million was transferred to municipalities. The Province projected an under-spending of R1.4 million by the end of the third quarter.

The PoG reported that a number of challenges had been experienced by municipalities with the conditions of the grants. These included, inter alia, a service provider filing for voluntary liquidation; vacancies that were not filled; slow procurement processes; unfurnished libraries; unsuitable conditions for the provision of services (mainly in Sekokeng); slow or no progress on certain projects; and instabilities in some of the municipalities.

The PoG added that other challenges relating to implementation are tight time-frames for spending of the grant whereas government and municipal financial years are different. The PoG further reported that the turn-around time for the application of amendments to business plans is lengthy and delays the implementation of projects. Furthermore, the PoG said that decision-making in municipalities was adversely affected due to the suspension of municipal managers and/or other vacant management posts.

3.8 The Province of KwaZulu Natal

The KwaZulu-Natal’s Provincial Department of Arts and Culture (PoKZN) reported that it was allocated R34.1 million for the 2009/10 financial year. R3.5 million was under-spent on this project and R1.4 million had been rolled over for the 2009/10 financial year. The PoKZN argued that under-spending related to an infrastructural project, a combined public library and regional library depot in Mbazwana. The PoKZN reported that 19 per cent of the annual allocation was transferred to municipalities.

The PoKZN reported that the reasons for under-spending an amount totaling R28 million, include the infrastructural project in Mbazwana which was due for completion by the end of the 2009/2010 financial year. The Mbazwana project was delayed due to labour disputes. This had been closely monitored and it is expected that the project be completed by August 2010 and not by January 2010 as initially estimated. The PoKZN commented that it was not unusual for building contractors in KwaZulu-Natal to fail meeting deadline targets and this was an alarming situation.

The PoKZN presented that monitoring of grant spending was conducted through monthly and quarterly reports which were submitted to the National Department of Arts and Culture and the Provincial Treasury. The Committee was informed that the PoKZN held reviews’ meetings with the National Department of Arts and Culture. The PoKZN reported that internal auditing on conditional grant spending was ongoing. Performance management audits were conducted by Manto Management Consultants as appointed by the National Department of Arts and Culture as from 29 July 2009. Evaluation Committee meetings and Provincial Treasury’s bi-lateral meetings were convened and inspection of sites was the responsibility of a Provincial Co-ordinator appointed by the National Department of Arts and Culture.

3.9 The Province of North West

The North West’s Provincial Department of Arts and Culture (PoNW) reported that it had been allocated R52.9 million and had a rollover of R1.9 million for the 2009/10 financial year. The PoNW said that the total allocation of R54.8 million for the 2009/10 financial year was allocated according to grant priorities. The grant priorities were reported by the PoNW as follows: capacity building in community libraries (staffing and training); construction, upgrading and maintenance of infrastructure; installing and upgrading information and communication technologies (ICT) for public access; procurement of books and other library materials; and promoting the culture of reading by procuring mobile library buses and conducting reading awareness campaigns through library promotion programmes. The PoNW reported that it spent R41.1 million (75 per cent) as at the end of the 2009/10 financial year.

The PoNW reported a number of achievements, including the procurement of a mobile library which was fully functional and was being used by five villages; provision of public internet access to 16 community libraries; procurement of 140 computers for community libraries; training of staff in community libraries on project management, computer literacy, disaster management and preservation; advanced toy library training and storytelling workshops were attended by 198 community library staff; 53 899 books were purchased and distributed to community libraries; R3 million had been transferred to Moretele Local Municipality for planning and design of the Dertig Community Library; Completion of Coligny Library extension in Ditsobotla Local Municipality and the maintenance of Wedela, Alabama and Welverdiend Community libraries.

The PoNW reported that a number of challenges contributed to under-spending. These include a delay in the construction of Ipelegeng Community Library valued at R2 million in Mamusa Local Municipality; a delayed tendering process for the construction of Utlwanang Community Library (valued at R2.5 million) in Lekwa-Teemane Local Municipality; late finalization of the tendering process to design and construct Lebaleng Community Library valued at R3.2 million in Maquassi-Hills Local Municipality; and a delay in the tender adjudication of Letsopa Community Library (valued at R0.9 million) in Tswaing Local municipality due to a municipal strike; late finalization of tender adjudication for appointment of consultants to construct Boikhutso Community Library in Ditsobotla Local Municipality; a tendering process for the design and planning phase of Mogwase Community Library (valued at R950 000) which was pending as at May 2010; and the disrupted extension of Koster Library in Ketleng-Rivier Municipality due to heavy rains.

Reasons for under-spending reported by the PoNW included seven infrastructural projects that were incomplete and the late appointment of service providers to supply vehicles, mobile library buses and security for community libraries. The PoNW reported that there was insufficient capacity in the Supply Chain Management Unit which has resulted in tender processes being delayed. As a remedial measure to this, the PoNW reported that a tender committee was established, it started its operations in February 2010 and is functional.

With respect to compliance with reporting, the PoNW stated that it has submitted monthly and quarterly reports to the National Department of Arts and Culture. However, the PoNW was struggling to get monthly spending reports from local municipalities.

The PoNW reported that intervention meetings with local municipalities that were receiving grants for capital projects were scheduled for the second week in May 2010 with the aim to address delays in the implementation of capital projects.

4. Observations

The Committee noted that challenges regarding the tendering and payment processes are ongoing in the provinces, and it recommended that this should be expedited. .

Most provincial departments of arts and culture reported that their respective provincial departments of public works had contributed to their under-spending because they appointed inexperienced contractors who failed to complete the projects.

The Committee observed that the provincial departments of arts and culture did not have a strategy to follow-up on funds transferred to municipalities and to ensure that such funds were spent on conditional grants priorities and, as a result, that had been the cause for misappropriation of taxpayers’ money.

The Committee observed that under-spending was caused by poor supply chain management processes.

The Committee noted that conditional grant funds that were transferred to municipalities appear as if they had not been spent even though they were reported as spent by provinces.

The Committee observed that some provincial departments of arts and culture spent most of their grants funds on the compensation of employees rather than on capital expenditure.

5. Recommendations

Having considered the presentations on the spending on the Community Library Services grant by the National Treasury and the afore-mentioned provincial departments, the Select Committee on Appropriations recommends that the National Council of Provinces considers the following:

5.1 That the provincial departments of arts and culture should strengthen their supply chain management units to avoid delays in the tendering processes.

5.2 That the provincial departments of arts and culture should develop monitoring tools to be utilised when they are monitoring spending on conditional grants by municipalities.

5.3 That the National Treasury and provincial departments of arts and culture should discuss effective ways of reporting spending on funds that are actually spent by municipalities, separate from committed funds.

5.4 That the provincial departments of public works should appoint experienced contractors with a good and sustained track record.

5.5 That the reporting requirements by municipalities should be improved to ensure that conditional grant funds transferred to municipalities were spent adequately.

5.6 That the provincial departments of arts and culture should refrain from spending grant funds on compensation of employees rather than purposes they were created for.

Report to be considered.