PRESENTATION TO PORTFOLIO COMMITTEE ON MINING OF 2009 / 10 ANNUAL REPORT 12 OCTOBER 2010

2. PRESENTATION TO PORTFOLIO COMMITTEE ON MINING OF 2009 / 10 ANNUAL REPORT 12 OCTOBER 2010

3. Presentation Outline • Introduction • Financial performance - An overview of the audit report - An overview of the Audit Committee report - Annual Financial Statements, including notes thereto - State of Financial Management systems Report on Financial misconduct and measures taken Efficiency savings and productivity gains. Supply chain management. Information Technology – Making better use of technology 3. Non Financial Performance Information i. Programme 1: Administration ii. Programme 2: Mine Health & Safety iii. Programme 3: Mineral Regulation iv. Programme 4: Mineral Policy & Promotion 4. Closure / Discussion

4. INTRODUCTION • Mine Health and Safety Act • Council for Geoscience Act • Derelict and Ownerless Mines Strategy • Service Delivery Environment • Emerging Issues

5. An overview of the audit report Audit opinion • Qualified audit opinion issued Basis for qualified opinion • Completeness of receivables for departmental revenue (R25m) could not be verified • This is related to disclosure note 26 (page 189) • Although the department prepares AFS on modified cash basis, such disclosure notes are necessary as part of the preparation for migration into accrual basis of accounting

6. An overview of the audit report Root Cause • Lack of a comprehensive debtors system • Skills gaps Management action plan • New debtors system to be developed as part of the new system – BAS to be used in the interim • Monthly workshops with regional offices to review registers • Additional staff with Financial background to be appointed in all regional offices

7. An overview of the audit report Emphasis of matter • This matters are not a qualification but are intended to draw the readers attention to such matters due to their importance. Matters reported are: • Basis of reporting - this is a standard paragraph for all national departments – No further action is required in this regard.

8. An overview of the audit report • Irregular Expenditure – • expenditure that was incurred without adhering to the internal delegation of authority, e.g. services rendered prior to approval by the relevant authority • These were picked up the internal controls established by the department • All cases were evaluated and condoned by the Accounting Officer during the year

9. An overview of the audit report • Restatement of previous financial year figures. • Changes effected on prior year’s reported figures • These changes were either made as a result of a query from the AG or initiated by Management • The intention is to align prior year’s figures to the current for comparability. • One of the major causes for these adjustments is change in reporting framework, e.g. disclosure of minor assets.

10. An overview of the audit report • Material under-spending of budget • Although the amount appears significant it only represents 2,9 percent of the total budget – which is below the materiality threshold set by National Treasury • The under spending was primarily caused by delays in finalising contracts for non-grid service. These contracts were signed towards the end of the financial year • Approval was granted by National Treasury for the roll over of the funding to the 2010/11

11. An overview of the audit report Potential unauthorised expenditure due to accruals exceeding saving • Of the R22.2 m accruals disclosed, R20.4 m relates to the DPW disputed invoices. • There was no deliberate intention to withhold invoices • At year end DPW had not submitted a revised invoice on the confirmed amount

12. Overview of the Audit Committee • The Audit Committee comprised of 3 independent members • The Committee met 6 times during the period under review (required minimum is 4 meetings) • The Committee approved its reviewed charter in terms of the PFMA and Treasury Regulations • The work of the Audit Committee was conducted in line with the approved charter and covered - Review of the effectiveness of Internal controls - Evaluation of Financial Statements - Effectiveness of the Internal Audit function • A process of appointing the members of the DMR Audit Committee following the split has been finalised

13. APPROPRIATION STATEMENT FOR 2009/10

14. Analysis of variances • The overall under spending by the Department was R137,288 millionwhich is 2.9 % of the budget. • The main reason for the under spending was the delay in finalising contracts for the non-grid electrification programme – roll over approved in this regard • An under-spending of 0.4% under programme 1 relates to outstanding lease payments and accommodation charges payable to the Department of Public works.

15. Analysis of variances • Mine Health and Safety branch reflected an under-spending of 0.1% which is due to vacancies within the branch. • The under-spending of R7.5 million under Mineral Regulation branch is attributable to delays in contracts and subsequent payments for projects aimed at rehabilitating ownerless and derelict mines of which R5 million was approved for roll over. • The under spending on Electricity and Nuclear branch can be attributed to payments that were not disbursed due to delays in finalising agreements

16. TREND ON UTILISATION OF FUNDS

17. Analysis of unspent funds • Under spending has been consistently below 3% for the last three years . • The increase in unspent funds for the year under review is attributable to the following : • R82 million non-grid electrification transfers that did not realize however contracts already concluded • The funds appropriated for working for energy project (R5m) • The R5m relating to Rehabilitation of ownerless and derelict mines • Roll over application has been made to National Treasury for the above

18. Analysis of variance in Statement of Financial Performance

19. Analysis of the Statement of Financial Performance

20. Statement of Financial Performance: Variance analysis • The staff cost increased in relation to the increase in staff numbers (1272 vs.1169) • The G & S cost is relatively low compared to 2008/9 owing to cost containment measures implemented during the year under review. The related costs include, travelling, venues and facilities, advertising and catering. • Tangible capital assets increased significantly owing to acquisition of furniture and servers for new building • Intangible capital assets decreased as only security related software were acquired during 2009/10

21. Statement of Financial Performance: Variance analysis • Increase of 23% in transfers represent new funds appropriated for Demand Side Management project (R250m), Working for Energy and Renewable Energy Finance Subsidy Office (REFSO) @ R5m apiece • Financial transactions in assets and liabilities went up by 56% and account for R925 thousand mainly written off for car accidents and ex-employees debts.

22. Analysis of variances: Statement of Financial Position

23. Analysis of variances: Statement of Financial Position

24. Analysis of major variances : Statement of Financial Position • The asset base increased by 24% from last year attributable to bank balance (R158m) for payments projected to disburse at year end , late revenue payments (R33m) • Prepayments and advances went down by 224% due to rehabilitation of ownerless and derelict mines projects that were concluded during the 2009/10 financial year. • Recoverable expenditure (R7.6m fraud and approximately R1. 9m – land for IPP project). • Notable decrease in long outstanding staff debt (R2.2m vs. R2.7m)

25. Analysis of major variances : Statement of Financial Position • Total liabilities of R201m(also 24% increase) include R 74 m revenue and R137m of voted funds for surrender • Net assets of R3.2 m include the capitalization reserve (R2.2m) and R1m recoverable revenue

26. Analysis of variances: Cash Flow Statement

27. Analysis of major variances: Cash Flow Statement • The increase in net cash flow available from operating activities is attributable to the increase in unspent funds by 60%. (as explained under unspent funds) • The significant increase in net cash flow from investing activities is due to acquisition of furniture and servers for the new building as well as the improvements made to the new building

28. Analysis of variances: Disclosure notes

29. Analysis of variances: Disclosure notes

30. Analysis of variances: Disclosure notes • Contingent Liabilities is made out of legal claims against the department, guarantees issues and interdepartmental payables (unconfirmed balances). • Accruals increased by 67% as a result of R20.4m due to Public works, invoice of which is still awaited • Increase on employees benefits is as a result of leave and performance bonuses due • Receivables increased as a result of uncollected monies due to the department • Irregular expenditure incurred in the current financial year was due to officials not following the departmental financial delegations.

31. Details of Transfers and Subsidies

32. Transfers and Subsidies

33. State of Financial Management systems Report on Financial Misconduct • 4 cases of financial misconduct were reported during the year. • Outcomes of the hearing are: 2 were found guilty, 1 is in progress while the other 1 has already left the Department. • Further action taken - 2 of the cases were reported to the police while the other one was suspended without pay for 3 months and the 4th one is still in progress

34. State of Financial Management systems Efficiency Savings and Productivity Gains: • Reduction on travel related expenditure and Catering is attributable to the effective implementation of the cost containment measures introduced during the year • The split of the Department of Minerals and Energy into two, namely the Department of Mineral Resources and the Department of Energy was successfully executed

35. State of Financial Management systems Supply Chain Management: • The SCM component has been fully restructured and aligned with the SCM Framework requirements. This enables effective implementation of all functionalities and improves productivity. • All SCM Committees as required in the framework have been constituted and fully operational. This enhances internal control measures within the SCM environment • Departmental Internal control systems in place are able to pick up irregular expenditure effectively

36. Information Technology Management • The department has developed a new integrated information management system • The Mine Health and Safety modules have been completed and rolled out for implementation • Currently developing modules for Mineral Regulation (licensing and compliance monitoring) • Some of the benefits of the new system include: • Online submission and processing of applications for prospecting and mining rights • Online checking of availability of farms prior to completing the application forms • Online checking of the status of the application • Integration of various processes within the department for improved efficiency.

37. Programme 1 CORPORATE SERVICES Purpose To enable the Department to deliver on its mandate, by providing strategic management and administrative support to the Ministry and the Department

38. SUCCESSES • Successful implementation of the President’s request to split the Department of Minerals and Energy into Department of Mineral Resources (DMR) and Department of Energy (DOE). • Successful realignment of Organizational Structure in line with the new mandate of the newly established Departments. • Successful matching and placing • Service Level Agreement developed and agreed for to be the hosting Department for DOE • Shared Support Services • Evaluation of MOUs signed with prioritized countries • Implementation of the Media and stakeholder engagement plan • Compliance Framework developed, approved and implemented • Policies , procedures and guidelines approved • Development and implementation of the balance score card implementation plan • Completion of the executive leadership development program through Wits. • Improved security measures • Continued addressing of issues of transformation regarding vulnerable groups

39. CHALLENGES • Change management issues due to the split • Capacitating the new Structure • Inadequate / lack of funding for the new approved structure • Implementation of the Communication Strategy

40. CORRECTIVE MEASURES • Reprioritization of priorities to ensure a successful Split of the Department • Climate Survey on DMR employees to be conducted • Prepare requests for additional funding through MTEF process for the implementation of the approved organizational structure • To obtain approval of the DMR Communication Strategy

41. Programme 2Mine Health and Safety Inspectorate Purpose Execute the Department’s mandate to safeguard the health and safety of the mine employees and people affected by mining activities Objective Reduce mining-related deaths, injuries and ill health through the formulation of national policy and legislation, the provision of advice, and the application of systems that monitor, audit and enforce compliance in the mining sector

42. Achievements/ Successes • Improved stakeholder relationships: Quarterly meetings in all regions with Unions Quarterly meetings with DoL, DoH and DPP • Address Health and Safety Risks: Completed Inquiries & Investigations as planned • Audits (83%) & Inspections (91%) • Development of Guidelines: Reviewed existing Guidelines • (e.g. Underwater Mining; Emergency Preparedness; and Drawpoints, Tipping Points & Orepasses) • Review and develop internal policies and procedures: • Exams Policy, Medical Appeal Procedure; Inclusion or Non-Inclusion of Fatal accidents in Statistics • Human Resource Development : 99 Officials completed a course on Risk Management in Mining • 97 Officials completed Health & Safety Training (Legal, Inspection, Audit, Investigation and inquiries)

43. Safety performance Injuries

44. Safety performance

45. CHALLENGES CORRECTIVE MEASURES Appointment of 19 Learner Inspectors 18 Bursary Students Training Initiatives with WITS, MQA and IRCA Implementation of an electronic business management system Electronic business management system still being developed • Capacity Building • Compliance Levels monitoring tool

46. CHALLENGES CORRECTIVE MEASURES SIMRAC project on integration of seismic networks has commenced Specialist Task team has been established to look on FOGs Quarterly review meetings between Minister, CEOs, Labour Enhance Rock engineering capacity of the Inspectorate both in H/O and Regions • FOG accidents

47. CHALLENGES CORRECTIVE MEASURES Reviewed TB guideline Chief Directorate on Health established Silicosis Roadshows • Occupational Health

48. Programme 3Mineral Regulation Purpose To regulate the minerals and mining sectors to achieve transformation and sustainable development. Objective To transform the minerals and mining sectors into one that competitively contributes to the sustainable development in the country.

49. Successes Regulation of the minerals and mining sector to achieve transformation and sustainability. • Exceeded the target of granting Rights to HDSA Monitor and enforce compliance • Exceeded the target of conducting inspections Effectively implement relevant legislation • Exceeded the target of conducting industry workshops

50. Challenges • Whilst we have exceeded targets in granting rights to HDSA, not many of these have graduated into Mining Rights. • Sale of Rights and dilutions - Some of these Rights could have been subjected to auctioneering without Ministerial consent • Inadequate capacity to conduct compliance inspections • Whilst the branch may have succeeded in conducting inspections, the impact is not felt on the ground, as limited number of Section 93 and 47 have been issued • Whilst the branch may have succeeded in conducting community and industry workshops, the branch experienced an increase in complaints from communities. These complaints though wide ranging, border on non compliance by mining companies on SLP commitments. • Funding (personnel, goods and services)