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Finance performance

Finance performance. Presented by Mr O. Ayaya Chief Financial Officer Department: Water Affairs (DWA) 14 October 2009. 1. Presentation Outline. Overview of expenditure trends as reflected in the AFS Reasons for under spending Donor funding Transfers and subsidies

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Finance performance

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  1. Finance performance Presented by Mr O. Ayaya Chief Financial Officer Department: Water Affairs (DWA) 14 October 2009 1

  2. Presentation Outline • Overview of expenditure trends as reflected in the AFS • Reasons for under spending • Donor funding • Transfers and subsidies • Previous audit outcomes • Key highlights from AG’s 2008/09 report • Overview of the audit committee 2

  3. Overview of the spending trends per programmeMEA 3

  4. Overview of the spending trends per economic classificationMEA 4

  5. Overview of the spending trends per programmeMEA (2007/08 vs 2008/09) 5

  6. Overview of the spending trends per economic classificationMEA 6

  7. Consultants, contractors and agency/outsourced services 7

  8. Consultants, contractors and agency/outsourced services (Cont) • Reasons for increase in expenditure was due to the additional funds granted for the backlog in sanitation at schools in clinics, regional bulk, Working for Water and Working on Fire. 8

  9. Measures to reduce reliance on Professional Service Providers • Filling of vacancies • Linking of PSPs to new appointments • Limitation of variation orders • Targeted internship programmes 9

  10. Explanations – economic classification items • Current payments consists of : • compensation of employees • Goods and services • Interest and rent on land • Financial transactions in assets and liabilities 10

  11. Explanations – economic classification items (Cont) • Transfers and Subsidies consists of: • Provinces and municipalities • Departmental agencies and accounts • Public corporations and private enterprises • Foreign governments and international organisations • Non profit institutions • Households 11

  12. Explanations – economic classification items (Cont) • Payments for capital assets • Buildings and other fixed structures • Machinery and equipment • Software and intangible assets 12

  13. Reasons for under spending • The under spending is as a result of the De Hoop Dam project. Disbursements of the funds in respect of the project could not proceed as anticipated mainly as a result of the delays in the conclusion of the negotiations to finalise the memorandum of agreement with the 23 different mines. 13

  14. Donor funds • During 2008/09 financial year, donor funds were received to implement the Community Water Supply and Sanitation Programme (CWSS) through the Masibambane III programme. The funds were used for the following activities: • The support to the implementation of water and sanitation infrastructure projects • Local government capacity building and knowledge sharing • Financial management improvement 14

  15. Donor funds 15

  16. Transfers – operating subsidies • Achievements • The allocated budget was transferred • There was no under expenditure on schedule 7 • All municipalities had approved RPPs and Addendums • Managed to transfer staff to municipalities 16

  17. Transfers – Operating subsidy • Challenges • Staff transfers not yet finalised • Still to finalise two transfer agreements • Allocated budget not adequate • Some municipalities not reporting on funds transferred to them 17

  18. Subsidies • KOBWA – R180m was transferred in 2008/09 FY • challenges • The Relocation Action Plan for compensating the communities affected by the construction of the Driekoppies Dam has not yet been finalized. • Due to the land claims the beneficiaries have been unable to fully exploit the potential of the properties and expand their operations by  taking  up the development opportunities that had been on offer at the time of receiving their compensation.. • Three of the four senior managers in KOBWA are newly appointed and need to find their feet. 18

  19. MEA: Previous audit outcome • 2005/06 – Qualification. Asset management. The completeness; accuracy and validity of additions disclosed in the financials could not be verified • 2006/07 – Qualified opinion – Assets. Disclosed amounts could not be substantiated with an adequate asset register • 2007/08 report Qualified opinion –Tangible capital assets – no assurance could be obtained regarding the completeness, existence and valuation of the closing balance of assets disclosed in the annual financial statements 19

  20. WTE: Previous audit outcomes • 2005/06 – Disclaimer. Non adherence to accounting framework. Non-adherence to the requirements of the South African Statements of Generally Accepted Accounting Practice (GAAP) . • 2006/07 – Qualified opinion – Assets. Disclosed amounts could not be substantiated with an adequate asset register • 2007/08 report Qualified opinion –The trading entity did not investigate all debtor balances for recoverability as required by the South African Statement of Generally Accepted Accounting Practice, IAS 39 (AC 133) Financial Instruments: Recognition and Measurement. 20

  21. Audit Outcomes – 2008/09 • MEA – Unqualified opinion • WTE – Unqualified opinion 21

  22. MEA- Key highlights from AG Report 2008/09 • The financial statements were subjected to material amendments resulting from the audit • The internal audit function did not substantially fulfil its responsibilities for the year as set out in TR 3.2/27.2 • There are significant deficiencies in the design and implementation of internal control in respect of compliance with applicable laws and regulations 22

  23. Key highlights from AG Report 2008/09 (WTE) • There was no separate strategic plan document for WTE • Unallocated receipts from customers which have been deducted from the carrying amount of trade receivables. • WTE has not implemented adequate measures to clear the suspense account at year end. • Review of the debtor’s age analysis indicates that debtors are outstanding for periods longer than 366 days. • The corresponding figures for 31 March 2008 have been restated as a result of an error discovered during the current year in the financial statements of the Water Trading Entity at, and for the year ended, 31 March 2008. 23

  24. Statement of Financial PerformanceMEA 24

  25. Financial Performance Narrative Revenue Analysis • Increase in revenue is mainly as result of the following • Rollover of funds from 2007/08 FY in respect of De Hoop Dam – R269 million • Additional funding in respect of WoF (R35 m), WfW (R28m), Compensation of Employees (R26 m) and inflation adjustments (R45 m) – R134 million • Self financing surrendered into NRF following closure of the industrial trading account – R46 million • Financial aid assistance in respect of Masibambane project – R445 million 25

  26. Financial Performance Narrative(Cont) Expenditure Analysis • An increase of 18% in departmental expenditure is mainly driven by the following • CoE – increase of 2% is due to expansion of organizational structure • Transfer of funds in respect of Regional Bulk Infrastructure, Backlogs in sanitation at schools and clinics and transfer to municipalities with regard to operations of water services • G&S – increase in operational expenditure of 15% is due to payment to contractors in respect of WfW, WoF, maintenance and repairs and subsistence and travel as well as professional service providers • An increase of 21% is due to financial aid assistance in respect of Masibambane project 26

  27. Financial Performance Narrative(Cont) Surplus/(Deficit) for the year • Increase in surplus is mainly as result of the following: • Unspent funds in respect of De Hoop Dam – R505 million • Departmental Revenue Collected which was surrendered to NRF – R72 million • Unspent funds in respect of Financial Aid Assistance – R36 million 27

  28. Statement of Financial PositionMEA 28

  29. Financial Position Departmental Assets An increase in movement of tangible assets is mainly as result of the following • Acquisition of machinery and equipment as well as furniture and office equipment (Additions) • Incorrect classification from previous financial year - Prior year adjustments • Increase in cash and cash equivalents is as result of delays in payments of invoices, amounts to be surrendered to NRF, and amount that was to be transferred to WTE • Receivable has decrease by 32% as compared to previous financial year due to collection of department debts • Decrease in loans is as result of repayment of capital portion of loan (irrigation boards) 29

  30. Financial Position (Cont) Departmental Liabilities An increase in departmental liabilities is mainly as result of the following • An increase of funds to be surrendered to NRF as result of unspent funds on De Hoop Dam Project. There were delays in the disbursement of these funds • An increase in payable in respect of advance received, forestry leases and salary deductions • An increase in unutilized financial aid assistance 30

  31. Statement of changes in net assetsMEA 31

  32. Statement of changes in net assets narrative - MEA • Capitalisation Reserves are the decrease in the historical loans to the Municipalities and  Irrigation Boards • Recoverable revenue are amounts applicable to staff debts 32

  33. Cash Flow Position MEA(cont.) 33

  34. Cash Flow Position (cont.) 34 • The net cash flow available from operating activities has decreased as result of the following: • An increase in outflow of current payments and transfers and subsidies • Decrease in cash flow from investing activities is due to acquisition of new capital assets

  35. Financial PerformanceWTE 35

  36. Financial Performance WTE (cont.) 36 • Increase in revenue (4.01% increase as compared to prior year) resulted from the increase in the tariff . • Approximately R 150 million was taken to a pumping costs provision account compared with only R 54 million in the prior year.

  37. Financial Performance WTE (cont.) 37 • Other income is down from the prior year by approximately R45 million (or 6.81 %). • The decrease is mainly due to a decrease in finance income as compared to prior year, which is as a result of the WTE not charging interest to overdue customers. • There was an increase in expenses of 1.78 % partly as a result of the following: • Approximately 25% (R133 million) increase in employee costs • Approximately 15% (R121 million) increase in administration expenses

  38. Financial Performance WTE(cont.) The increase in revenue and the increase in expenses resulted in an overall increase of 3.32 % (R 48 million) in the deficit recorded in the current financial year as compared to the prior financial year. The deficit for the year as a percentage of revenue earned has remained constant at around 98% year on year. One of the main contributors to this deficit is the fact that there are deficiencies in the pricing strategy that prevents the WTE from charging a tariff that will allow for full recovery of the costs it incurs in providing bulk water services to the water users. 38

  39. Financial Performance WTE(cont.) 39 • Taking out the effect of depreciation, the ratio of expenses as compared to total income is as follows: • 2007/08 = 1.04 which means that 104% as a ratio of income earned was consumed by operating expenses if we exclude depreciation • 2008/09 = 1.01which means that the WTE is not yet generating enough income to cover its operating expenses

  40. Financial PositionWTE 40

  41. Financial Position WTE(cont.) 41 Refinements to the infrastructure asset values amounting to R4.9 billion on the reported figures for the 2007/08 financial year were made The increase in trade and other receivables of 41% means that cash was tied up in debtors. This is one of the factors that contributed to a decrease in cash and the resultant overdraft.

  42. Financial Position WTE (cont.) 42 Other current liabilities increased by 142 % as compared to the prior year mainly as a result of an increase of 194% (R 1 billion) increase in deferred income

  43. Cash Flow Position 43

  44. Cash Flow Position (cont.) 44 • The cash position of the WTE has decreased by 148% year on year as a result of the following: • Decrease in profitability as a result of deficiencies in the Pricing Strategy • Increase in trade receivables • Increase in trade payables

  45. Overview of the audit committee • During the year under review, the Audit Committee had three normal meetings and one special meeting. Mr J.A. Boyd resigned as Chairperson of the Audit Committee on 12 November 2008, at which point Ms S Thomas was appointed as Chairperson. Mr Motha and Ms Kabini-Zondo were appointed to the audit committee in October 2008. 45

  46. Overview of the audit committee(Cont) • Internal control • Whist the members of the Audit Committee believe that the system of internal controls largely covers organisational, financial and operating risks, control weakness are periodically identified during the Internal and External audit processes. The committee closely monitors management’s actions to remedy these weaknesses. • Risk management • The department has developed and approved a risk management strategy. This strategy is the foundation for a continuous risk assessment process and for management monitoring of risks on an ongoing basis. 46

  47. Overview of the audit committee(Cont) • Internal auditing • Internal auditing provides a supportive role to management and the Audit Committee to achieve their objectives by assisting in the management of risks within the department • Evaluation of financial statements • The Audit Committee concurs and accepts the conclusions of the Auditor-General on the annual financial statements and is of the opinion that the audited annual financial statements be accepted and read together with the report of the Auditor-General 47

  48. Thank you 48

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