1

PRESENTATION TO SELECT COMMITTEE ON ECONOMIC

DEVELOPMENT OF DMR 2010 / 11 ANNUAL REPORT

15 NOVEMBER 2011

2

Presentation Outline

1. Financial performance

- Annual Financial Statements

2. Auditor General’s Report

- Audit Findings

- Report on Material Losses

- Report on Accruals

3

APPROPRIATION STATEMENT FOR 2010/2011

PROGRAMME

2010/11Final Budget

R'000

2010/11ActualR'000

VarianceR'000

2009/10Actual R’000

1. Admin 227,865 226,727 1,138 249,253

2. MHS 137,095 137,092 3 138,543

3. MR 188,611 188,608 3 190,008

4. MPP 442,271

442,270 1 73,724

Total 995,842 994,697 1,145 651,528

4

Analysis of variances

• The overall under spending by the Department was R1,145 million which is 0.11 % of the budget

• The main reason for the under spending relates to the procurement of goods and services whereby orders were raised during the 2010/2011 financial year but delivery thereof and processing of invoices and payments happened subsequent to that. This was mainly on Programme 1: Administration

5

TREND ON UTILISATION OF FUNDS

 EconomicClassification 2010/11 2009/10 2008/09 2006/07

Compensation of Employees 326,457 403,323 330,089 290,561

Goods and services 206,504 263,475 269,408 277,222

Payment for Capex 28,603 48,690 18,855 7,470

Transfer and subsidy 438,120 3,828,303 3,111,061 2,366,512

Theft and losses 50 924 593 5,602

Unspent 1,145 137,288 56,235 27,570

TOTALS (BUDGET) 995,842 4,682,004 3,786,241 2,974,937

% Under Spending 0.11% 2.9% 1.48% 0.93%

6

Analysis of Unspent Fund

• Under spending has been consistently below 3% for the last three years

• For the year under review, the unspent funds is attributable to the late receipt of invoices and consequent delay in processing payments

• However, this is not a true reflection of the matter as there is a huge gap between the unspent amount and the accrual raised which would have had constituted unauthorised expenditure had payment been done in time.

7

Analysis of variance in Statement of Financial Performance

8

Items2010/11 2009/10 Variance % variance

R’000 R’000 R’000

Compensation of employees

Basic salary 217,268

259,530

(42,262)

(16.28)

Periodic payments 187

1,526

(1,339)

(87.74)

Pension 28,875

33,503

(4,628)

(13.81)

Goods and services

Venues and facilities 2,282

5,454

(3,172)

(58.15)

Advertising 1,661

2,829 (1,168)

(41.28)Communication 11,181

19,875

(8,694)

(43.75)

Analysis of the Statement of Financial Performance

Item2010/11 2009/10 Variance

% variance

R’000 R’000 R’000

Travelling 54,667

67,458 (12,791)

(18.96)Operating leases

64,147 34,231 29,916

87.39

Financial transactions in assets and liabilities

50

925 (875)

(94.00) Transfers and Subsidies 438,120 3,828,303 (3,390,183) (88.55)

Tangible capital assets

Buildings and other fixed structures 17,059 26,917 (9,858) (36.62)

Machinery and equipment 10,404

20,467 (1,063)

(49.16) Software and other intangible assets

1,140

1,306 (166)

(12.71)

9

Statement of Financial Performance: Variance analysis

• The staff cost decreased as a result of the split of Department of Minerals and Energy into Dept of Mineral Resources and Dept of Energy. (1,076 vs 1,272)

• The G & S cost is relatively low compared to 2009/10 owing to split of Dept of Minerals and Energy. However the operating lease cost increases due to the relocation of the Head Office and some of the Regional offices

• The decrease in Tangible capital assets cost is attributable mostly to the leasehold improvements for Trevenna paid in 2009/10

10

Statement of Financial Performance: Variance analysis

• Decrease of 88.55% in transfers and subsidies is due to the fact that most of the transfers for the former DME relate to Dept of Energy

• Financial transactions in assets and liabilities went down by 94% due to fewer losses written off during the financial year.

11

Analysis of variances: Statement of Financial Position

Item 2010/11 2009/10 Variance %variance

R’000 R’000 R’000

Current Assets        Cash and cash equivalents 37,493 192,279 (154,786)

(80)

Prepayments and Advances 40 5,902 (5,862) (99)

Receivables 20,663 14,580 6,083 41 Current Liabilities        Voted Funds to be surrendered 1,145 137,288 (136,143)

(99)

Revenue to be surrendered 2,482 74,344 (71,862) (96)

12

Analysis of variances: Statement of Financial Position

Item 2010/11 2009/10 Variance %variance

R’000 R’000 R’000

Net Assets        Recoverable Revenue 1,052 1,062 10

0.94

13

Details of Transfers and Subsidies

Recipient

2010/11

Purpose of transfer payment

Actual transfer

R'000

SBT Trust and Council for Geoscience 35,671

Assistance to marginal mines in the form of pumping subsidies (R3m) and research to prevent ingress of water into underground holdings (CGS:R32.7m)

Council for Geoscience 136,505Core funding in terms of establishing act

Council for Mineral Technology Research 195,840

R165.8 million -Core funding in terms of establishing act and R30 million - Mine Rehabilitation projects

South African Diamond and Precious Metals Regulator 40,643

Core funding in terms of establishing act

Mine Health and Safety Council 5,358

Core funding in terms of establishing act

Industrial Development Corporation of SA (Small scale mining) 23,609

Small scale mining projects

16

Audit Findings and action plan: 2009/2010 v 2010/2011

17

AG Finding 2009/10 AG Finding 2010/11 Comment

1. Receivable for Departmental Revenue – incomplete, inconsistent and inaccurate

Receivable for Departmental Revenue – application of the Royalty Act and interest calculation

The database issue raised in 2009/10 has been resolved. Allocation and interest calculation are new issues

Action plan to address 2009/10 finding:

Status as at 31 March 2011:

Proposed action plan to address 2010/11 finding:

• review revenue registers monthly•Conduct review sessions monthly• Appoint staff with Finance knowledge and experience at Regional offices•Develop Rev Management system

•Implemented since August 2010 – ongoing•Implemented since August 2010 – ongoing•Resource commenced on 01 February 2011

•Not finalised as priority was given to the SAMRAD online

Finalise the development of the Revenue Management model in SAMRAD

Audit Findings and action plan: 2009/2010 v 2010/2011

AG Finding 2009/2010

AG Finding 2010/2011

Comment

2. Invoices not paid within 30 days or receipt

Invoices not paid within 30 days of receipt

This is a repeat finding

Action plan to address 2009/2010 finding

Status as at 31 March 2011

Proposed Action Plan to address 2010/11 finding

•Communicate centralisation of invoices• monthly report on contract versus order •Review process to confirm payments

•Implemented 31 July 2010•Implemented 31 July 2010•Implemented 31 July 2010

• Maintain action plans already in place•Enhance expediting of orders and monitor progress on a monthly basis

18

Audit Findings and action plan: 2009/2010 v 2010/2011

AG Finding 2009/10 AG Finding 2010/11 Comment

3. Irregular expenditure incurred not reported in the disclosure notes

- -

Action plan to address 2009/10 finding:

Status as at 31 March 2011

Proposed action plan to address 2010/11 finding:

•Adjust 2009/10 financials and report irregular expenditure

•Implement corrective measures against transgressors

•Adjusted in June 2010• Irregular Expenditure register updated monthly

•Branches are notified or irregular expenditure as it occurs for investigation and remedial action

n/a – will just be maintained

19

Audit Findings and action plan: 2009/2010 v 2010/2011

AG Finding 2009/10 AG Finding 2010/11 Comment

- Contingent Liability – obligation for the rehabilitation of derelict and ownerless mines not provided for

New finding

- Action Plan to address the finding

Due date

Appoint Council for Geosciences to finalise the quantification of priority sites and estimated cost thereof

28 February 2012

20

Audit Findings and action plan: 2009/2010 v 2010/2011

AG Finding 2009/10 AG Finding 2010/11 Comment

4. Accruals – exceeded funds to be surrendered and would have constituted unauthorised expenditure had payment be made in time

Accruals – exceeded funds to be surrendered and would have constituted unauthorised expenditure had payment be made in time

This is a repeat query

Action plan to address the finding

Action plan to address the finding

Due date

•Motivate for additional funding

•Motivate for additional funding•Introduce further cost containment measures on Good and Services

• Done in July 2011

•By 01 April 2012

21

Report on Accruals• The R1,1 million unspent funds to be surrendered would

not have been sufficient to cover the accrual raised at the end of the year and this seem to be a growing trend.

• Records show a trend between accruals and unspent funds for the past two financial periods as follows:

2009/2010:

R19,6 million vs R11,5 million (deficit of R8,1 million)

2010/2011:

R37,7 million vs R3,8 million (deficit of R33,9 million)

• The unauthorised expenditure that would have been incurred by the Department as shown by the deficit above is an indication that there are serious challenges in the allocation of budget for Goods and Services

22

23

THANK YOU