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VOTE : 21 Defence and Military Veterans

VOTE : 21 Defence and Military Veterans. Annual Audited Financial Statements For the year ended 31 March 2011. Scope. Purpose of the presentation Breakdown of Appropriation Revenue Statement of Financial position and analysis of changes

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VOTE : 21 Defence and Military Veterans

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  1. VOTE : 21Defence and Military Veterans Annual Audited Financial Statements For the year ended 31 March 2011

  2. Scope Purpose of the presentation Breakdown of Appropriation Revenue Statement of Financial position and analysis of changes Statement of Financial performance and analysis of changes Statement of changes in Net Assets Cash Flow Statement Departmental revenue Expenditure on compensation of employees Expenditure on goods and services Payments for financial assets Debtors Auditor General’s Report

  3. Purpose The purpose of the presentation is to present Defence’s 2010/11 Annual Financial Statements and the Report of the Auditor General on this statements to the Portfolio Committee for Defence for the year ended 31 March 2011.

  4. Breakdown of Appropriation Revenue

  5. Analysis of Changes Increase in programme Administration due to new Military Salary Dispensation, general inflation increases and the establishment of the Department of Military Veterans. Increase in programme Landward Defence due to new Military Salary Dispensation, increase in Military Skills Dispensation (MSD), procurement of critical ammunition and the establishment of the works capability. Decrease in programme Air Defence mainly due to the termination of the A400M airlift capability. Increase in programme Maritime Defence due to new Military Salary Dispensation.

  6. Analysis of Changes Increase in programme Military Health Support due to new Military Salary Dispensation Increase in programme Defence Intelligence due to Military Salary Dispensation Increase in programme General Support due to the maintenance and repair of Defence Infrastructure and the write-off of unauthorised expenditure. There was a decrease due to the delay in the upgrade of the AFB Waterkloof runway Increase in programme Force employment due to support during the 2010 FIFA World Cup and public service strike

  7. Composition of expenditure by programme 7

  8. Analysis of Changes Increase in Compensation of employees due to improvement in salary dispensation. Increase in Goods and services due to bigger expenditure on consultants, contractors and agency/outsourced services, Computer services, Inventory, Operating leases, Owned and leasehold property and other operating expenditure. Decrease in transfers and subsidies to departmental agencies and accounts due to smaller transfer to the SDA due to cancellation of A400M Airlift Capability and SDP’s in process of finalisation. Increase in transfers and subsidies to public corporations and enterprises due to bigger transfer to Armscor. Decrease in buildings and other fixed structures due to the delay of the completion of the AFB Waterkloof runway. Increase in machinery and equipment and Specialised Military assets due to inflation increases. Increase in payment for financial assets due to unauthorised expenditure written-off.

  9. DEPARTMENT OF DEFENCE AND MILITARY VETERANS VOTE 21 Statement of Financial Position as at 31 March 2011 Note 2010/11 2009/10 R'000 R'000 ASSETS Current assets 740 829 915 549 Unauthorised expenditure 8 60 918 60 918 Fruitless and Wasteful expenditure 9 29 927 Cash and cash equivalents 10 58 607 70 951 Prepayments and advances 11 74 964 92 237 Receivables 12 533 949 678 154 Loans 14 12 362 12 362 Non-current assets 75 000 75 000 Investments 13 75 000 75 000 TOTAL ASSETS 815 829 990 549

  10. Analysis of Changes Decrease in cash and cash equivalents due to smaller requirement for cash at year end (Positive) Decrease in prepayments and advances due to backlog in S&T advances worked down (Positive) Decrease in receivables due to Unauthorised expenditure written off (Positive) Decrease in bank overdraft also due to Unauthorised Expenditure written off (Positive)

  11. Analysis of Changes Decrease in total appropriation due to smaller allocation from National Treasury Increase in expenditure on Compensation of employees due to improvement in salary dispensation Decrease in expenditure on Tangible capital assets due to delay in the completion of the AFB Waterkloof runway

  12. Departmental Revenue

  13. Analysis of Changes Increase in Sales of goods and services other than capital assets due to increase in receipts for board and lodging and housing rent Increase in sales of capital assets due to more obsolete and redundant assets sold Decrease in financial assets and liabilities due to smaller exchange rate profit than in the previous financial year Increase in transfers received due to more funds received from the United Nations for participation in Peace Support Operations

  14. Compensation of Employees

  15. Analysis of Changes Increase in basic salary due to the new Military Salary Dispensation and the general salary increase Increase in compensative/circumstantial due to the increase in the Military Skills Dispensation (MSD) and increase in Reserve Forces salaries Increase in other categories related to the new Military Salary Dispensation and the general salary increase

  16. Goods and Services

  17. Analysis of Changes Increase in computer services due to adjustment in SITA tariffs. Increase in consultants, contractors and agency/outsourced services due to bigger expenditure on medical general consultants, research and development and maintenance and repair. Increase in inventory due to bigger expenditure on fuel, oil (largely sensitive to dollar rand exchange and oil price fluctuations) and gas, other consumable materials, military stores and medical supplies.

  18. BREAKDOWN OF CONSULTANTS, CONTRACTORS AND AGENCY/OUTSOURCED SERVICES • More than 200 individual budget line items. • 6 Main categories • Business and advisory services eg: Rm 288 • Burial Services • Security Services • R&D Telecommunication • Operational Research • SABS • R&D: CSIR Services • Infrastructure and planning eg: Rm 2 • General Consultants (EDP) • Engineering Services • Calibration • Ship Design • Codification and Cataloguing

  19. BREAKDOWN OF CONSULTANTS, CONTRACTORS AND AGENCY/OUTSOURCED SERVICES (CONTINUE) • Laboratory Services eg: Rm 20 • Occupational Health Analytical Services • Environmental Health Analytical Services • Legal Costs Rm 1 • Contractors – primarily Maintenance & Repair Rm3 263 • SA Army (60 items) • SAAF (68 items) • SA Navy (64 items) • SAMHS (61 items) • Agency and support/outsourced services eg: Rm 364 • Veterinary services • Nursing • Medical waste removal

  20. Goods and Services- Continued

  21. Analysis of Changes Increase in operating leases due to increase in the payment of leases for non state owned properties by DPW. Increase in owned and leasehold property expenditure due to bigger expenditure on municipal services. Increase in other operating expenditure mainly due to aircraft chartering for sustainment flights etc.

  22. Payments for Financial Assets

  23. Debtors

  24. Analysis of Changes Decrease in claims recoverable from Department of Health Decrease in staff debt due to smaller amount in suspense accounts not allocated to budget at year-end Decrease in other debtors mainly due to unauthorised expenditure written off, increase in operational debt (Exercise GOLFINHO) and increase in contractual liabilities (studies at state expense)

  25. Staff Debtors

  26. Analysis of Changes Decrease in salary related staff debtors due to smaller amount in suspense account not allocated to budget at year-end

  27. Other debtors

  28. Other Debtors - Continued

  29. Analysis of changes Decrease in other debtors mainly due to unauthorised expenditure written off, increase in operational debt (Exercise GOLFINHO) and increase in contractual liabilities (studies at state expense)

  30. Auditor General’s Report

  31. Summary of the findings • Qualification on asset management • Emphasis of Matter items on • Restatement of Corresponding Figures for Operating Leases • Irregular Expenditure • Other Matter items on • Internal Audit • Financial Misconduct • Annual Financial Statements, Performance and Annual report • Human Resource Management and Compensation • Procurement and Contract Management • Expenditure Management

  32. Audit OutcomeQualification on Assets Qualified opinion on the basis of the assets that are now stated at R 76.8 billion (no disclosure in prior years) in disclosure notes 32, 33 and 34 to the financial statements The AG acknowledges that the department has commenced addressing some of the prior year qualification matters, the process is unfinished. The matter had been reported in previous financial years.

  33. AG findings and corrective actionQualification Item LEGEND - OM: Other Matter EOM: Emphasis of Matter Q: Qualification

  34. ASSET MANAGEMENT QUALIFICATION

  35. Corrective Measures (Tangible Capital Assets- Movable)(Continued) The charter for the Asset Management and E-procure modules of the Integrated Financial Management System has been signed with NT resulting in the lifting of the moratorium on system enhancements. The process for the development of a Single Integrated System for DOD Log requirements is now underway to be integrated with IFMS. A system integrated validation process between the FMS and the Logistical Systems is being developed to enable monthly reconciliation between the two systems with regard to additions and accruals. ASSET MANAGEMENT QUALIFICATION 42

  36. ASSET MANAGEMENT QUALIFICATION Corrective Measures (Tangible Capital Assets - Immovable) Strategy and policy on Immovable Tangible Capital Assets in the DOD has been developed, and the Defence Endowment Property portfolio register has been finalized . Establish Service Level Agreement with N DPW on the disclosure of Immovable Tangible Capital Assets for 2011/12 AFS. Initiate vesting process and then disclose Immovable Tangible Capital Assets (Defence Endowment Property portfolio), once vesting complete, by 28 Feb 2012. 43

  37. ASSET MANAGEMENT QUALIFICATION 44

  38. Audit Outcome - Matters of Emphasis Emphasis of matters paragraphs are included in the auditor’s report in order to highlight them for the benefit of the users of the financial statements. There are 2 matters of emphasis in the report: Restatement of corresponding figures As a result of the corresponding figures for operating leases for March 2010 being restated as a result of an error discovered during 2010-11 financial year. Irregular expenditure As disclosed in note 27 to the financial statements, irregular expenditure to the amount of R 799,349 million, mainly comprising procurement not in terms of Treasury Regulations, was incurred by the department.

  39. AG findings and corrective action Emphasis of Matter Items

  40. Corrective Measures The FMD is busy restructuring to place financial managers at all Services and Divisions who will in future be responsible for the verification of the accuracy and completeness of financial statement figures. The DOD is also busy appointing a Head of Internal Audit to ensure that audits are conducted on the feeder systems, thereby providing additional assurance and quality control to the CFO and the Accounting Officer regarding completeness and accuracy of figures submitted to AGSA for audit purposes. Consideration for the establishment of a technical unit in the CFO office to deal with the fast development of technical requirements along the line of the Auditor General arrangements and to provide/perform quality assurance reviews at units. Restatement of corresponding figures (Continued) 47

  41. Emphasis of Matter Items

  42. DETAIL OF IRREGULAR EXPENDITURE FOR FY2010/11 50

  43. DETAIL OF IRREGULAR EXPENDITURE CONDONED/ IN PROCESS OF CONDONEMENT DURING FY 2011/12 51

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