Beware the hockey stick effect
Despite the sterling efforts of staff, the Mandela Bay Development Agency, for which I am the accounting officer, will not achieve some of its key capital expenditure targets for the 2019/2020 period.
After an improved year-onyear performance in 2018/2019, despite unpredictable cash flows, the team was on track to improve on that performance too for 2019/2020.
Evidence of this is found in the auditor-general of SA’s 2018/2019 report, awarding the MBDA an unqualified audit outcome.
It is also fact that the MBDA operated for exactly half of the 2019/2020 year without receiving funds to implement its programs and business plan.
In this respect, the dreaded hockey stick effect has now hit the MBDA, compounded by the advent of Covid-19 lockdowns.
The hockey stick effect refers to a pattern which emerges when the quarterly capital expenditure of especially municipalities and entities is plotted on a graph.
The start of a financial year usually shows low capital expenditure as entities gear up their supply chain processes to execute projects.
Money being spent is generally that which was rolled over from the previous financial year because it was already committed, thus the expenditure in the current financial year is the result of processes which were concluded in the previous financial year.
Performance targets are set in such a way that preparatory work is accelerated in the third quarter to ensure expenditure in the fourth quarter.
This is both risky and unsustainable from a combined financial management, infrastructure provision and value for money perspective.
A combination of inadequate project planning and execution, cumbersome supply chain processes and complex municipal budgeting systems make the hockey stick effect an inevitable reality.
The problem with the hockey stick effect is that it leads to frenetic activity in the last quarter of the financial year and then also leads to the inevitable rolling over of funds to the next financial year.
If money is not already committed or spending has not started in a particular financial year, it can be taken away during budget preparation for the next financial year.
This is especially worrying for municipalities who rely on conditional grants provided by other spheres of government.
Through improved project planning such as ensuring the environmental, zoning and building plan approvals are in place before commencing with capital projects, good interdepartmental co-operation through understanding each other’s processes and priorities, and by working as a unit, the MBDA started to address the hockey stick effect in 2018.
We started by ensuring that key aspects of the project approvals which are outside our control are addressed before we start with budgeting and project implementation.
Within the municipal sphere, money may not be spent on capital projects unless that money has been allocated to a budget which has been consulted with local stakeholders and approved by the municipal council.
Preceding the budget, is the Integrated Development Plan (IDP), also prepared in a consultative manner, and approved by the municipal council.
It is once the Service Delivery Budget Implementation Plan (SDBIP), which is a combination of a summarised IDP, annual budget and annual performance plan, is approved by the council that the supply chain process can proceed.
Today is an important date in Nelson Mandela Bay as the municipal council is set to kick-start the IDP and Budget Review process.
A project can only be executed based on a transparent supply chain management process which includes bid specification, bid evaluation and the bid adjudication which makes recommendations to the accounting officer for approval.
A mandatory non-objection period of 14 days must be observed before the successful tenderer starts work, sometimes years after the project was first mooted.
This cumbersome process will need to be examined if the post-Covid-19 recovery is to be swift and effective.
The system which eventually leads to roads being built, clinics constructed and sewage pipes being laid has many components to it.
Any system with too many components builds within it its own inefficiencies, as a comparison between an internal combustion engine and an electric motor would demonstrate.
SA has a unique, albeit complex, democratic system where someone in a community can raise ideas and if accepted through the system could see those ideas implemented.
Within this system, designed to promote transparency, accountability and to prevent corruption, lies the source of its weaknesses.
In other words, because there are so many parts to the system, corruption and inefficiencies are inevitable.
Evidence in corruption cases and the information provided to the commission on state capture show how easily it is done by controlling the various levers or parts of the system.
Accounting officers often must correct flaws in the system and in doing so open themselves up to accusations of corruption.
In the post-Covid-19 capital expenditure programme, it is this hockey stick trend that needs to be re-examined because it impacts on service delivery and value for money which are key aspects of the auditor-general’s annual audit process.
Between National Treasury, Cogta and Salga there needs to be a review of the capital projects funding regime because they are the guardians of an inefficient system.