Presentation to the Portfolio Committee: Water & Environmental Affairs Overview of Financial Performance Annual Financial Statements 2009/10 Presentation to Portfolio Committee , 13 October 2010 Parliament of the Republic Of South Africa Presentation byMr. Onesmus Ayaya Chief Financial Officer19 October 2010 1
Purpose of the presentation PART A- Main Account Departmental Expenditure Reasons for under-spending Rollover of Funds Final virements Reason for virement Earmarked Funding Official Development Assistance –donor funds Transfer of function Presentation Outline
Presentation Outline PART B- Water Trading Entity Objective of the presentation Overview of the Annual Financial Statements (AFS) Improvements in relation to previous years Presentation on Financial Performance Presentation of Financial Position Presentation on Cash Flow Position Recommendations for improvements going forward Recommendations
Report to the Portfolio Committee on the financial performance for the year ended 31 March 2010 as embodied in the Annual Financial Statements (AFS) Highlight improvements made by the WTE in relation to the previous year’s AFS To highlight challenges shown by the financial results Provide recommendations on improvements going forward Purpose of the presentation
PART A Main Account
MA Overview of spending trends per programme MEA (2008/09 vs 2009/10)
MA Departmental Actual Expenditure Fourth Quarter Ending – 31 March 2010 after transfer of functions
The department failed to disburse the entire allocated budget due to: The fact that Accelerated Community Infrastructure Project has under spent it’s budget. This was as a result of the fact that the projects are linked to municipal financial year which ended in June 2010. The funding of this project is committed and work has started in MP, LP, EC, KZN and NC. Water Service Grant to Mopani District Municipality was withheld as they had failed to finalise their business plan and failed to submit 2008/09 close out report on how the 2008/09 funds were spent. De-Hoop: Unspent funds on Social Component of Downstream Project. This was as a result of delays by commercial users (mining) to commit to the commercial components of the project during the recessionary conditions prevailing throughout the global market. MA Reason for under disbursement
MA Rollover requests from 2009/10 - 2010/11
MA Final Virement (Shifting of Funds in terms of Section 43 of PFMA) Reasons for virement • Programme 1 (ADMINISTRATION) has overspent it’s allocated budget by R33 million on IT services, write offs and office accommodation, hence funds were shifted to the programme. • A total of R8,400 and R26,314 were shifted from Programme 2: Water Resource Management and Programme 3: Water Services respectively as a result of savings that was realised under personnel budget due to departmental restructuring and high staff turn-over.
Earmarked funding are allocations earmarked by National Treasury for a specific purpose and may not be used for other purposes. Below are earmarked allocations for 2009/10 financial year. Total of earmarked funds amount to R2 698 166 000 Earmarked Funding MA
MA Official Development Assistance –Donor funds
MA Transfer of functions • The President of Republic of South Africa announced during his state of the nation address that functions of Sanitation services and Forestry will reside with the Dept. of Human Settlement and the Dept. of Agriculture, Fisheries and Forestry (DAFF), respectively. • A total budget of R 579.104 million was shifted to DAFF as a result of shifting of forestry function during the financial year. • The expenditure to the amount of R554.076 million was claimed from the DAFF as a result of the expenditure that the Department of Water Affairs has incurred on their behalf.
PART B Water Trading Entity (WTE)
WTE Overview of the Annual Financial Statements • AFS were prepared in accordance with principles of GAAP • Preparation framework has not changed from previous years • AFS include the following: • Statement of Comprehensive Income • Statement of Financial Position • Statement of Changes in Net Assets • Statement of Cash Flows • Notes to the Financial Statements • There were no changes in accounting policies when comparing current year with previous year’s accounting policies. • There were further refinements made by the WTE which necessitated a restatement of prior year’s amounts
WTE Improvements in relation to previous years • Vendor reconciliations have been performed and are all up-to-date • Interest has been charged to long-outstanding debtors • Deferred income has been split into current and non-current portions • The entity did not have bank overdraft in the current year
Financial Performance cont… WTE • Increase in revenue (34% increase as compared to prior year) resulted partly from the increase in the tariff and also from the increase in number of billed customers as a result of the process of identification of all water customers undertaken by the WTE. • Other income is up from the prior year by approximately R23 million (or 5 %).
Financial Performance cont… WTE • The increase is mainly due to an increase in other income as compared to prior year, which relates to sundry income received from the water users. • There was an increase in expenses of 9 % (312 million) partly as a result of an increase of approximately 30% (R196 million) in employee costs in the current year as compared to prior year.
Financial Performance cont… WTE • The increase in revenue and the increase in expenses resulted in an overall decrease of 16 % (R 231 million) in the deficit recorded in the current financial year as compared to the prior financial year. • There is a marked improvement in the ratio of the deficit for the year as a percentage of revenue earned, which improved from 94% in the prior year to 59% in the current year.
Financial Performance cont… WTE • One of the main contributors to this improvement can be attributed to the efficiencies in the revenue and costs management systems that are beginning to bear fruit within the WTE.
Financial Performance cont… WTE • Taking out the effect of depreciation, the ratio of expenses as compared to total income is as follows: • 2008/09 = 1.02 which means that 102% of total income earned was consumed by operating expenses if we exclude depreciation • 2009/10 = 0.93 which shows that there is huge improvements in the current year. The ratio shows that the WTE has generated enough income to cover its operating expenses, excluding depreciation.
Financial Performance cont… WTE • Continuing refinements to the infrastructure asset values on the reported figures for the 2007/08 and 2008/09 financial year were made, resulting in a restatement of prior year figures • Trade and other receivables decreased by 11% year on year, further giving testament to the improvements being made by the WTE in its revenue management efforts. • This is one of the factors that contributed to an increase in cash and cash equivalents in the current year. • Other current liabilities increased by 70 % as compared to the prior year mainly as a result of an increase of 71% (R 1 076 billion) increase in deferred income
Statement of Changes in Net Assets cont WTE • The statement shows the impact that a change wherein the increase in depreciation as a result of revaluation of infrastructure assets is now released to accumulated surplus each year. • This assists in limiting the impact on the accumulated deficit for the year. • As a result the revaluation reserve has decreased from R 86 billion on 1 April 2008 to R 61 billion at 31 March 2010
Cash Flow Position WTE • The cash position of the WTE has improved by 4 146% • year on year as a result of the following: • Decrease in the deficit for the period as a result of efficiencies achieved by the WTE through its operational improvement projects • Decrease in trade receivables balance • Increase in trade and other payables
Monthly Trial balance meetings Fill all vacancies Audit action plan to be compiled to address reported matters Report to be compiled regarding problems experienced during compilation of AFS Workshops to address governance and policy matters Regional visits to address specific needs Recommendations – Main Account MA
Recommendations – Main Account Regional Heads and responsible CD’s to sign off inputs (AFS & Audit queries) Training staff on how to respond to audit findings A-G’s (strategic plan) Engagement Letter will be fine combed regarding budget vs. outcome All Managers to be more involved Top Management to be briefed frequently MA
A radical turn-around that would comprise of Getting external technical expertise Reassessing the risks Developing a medium-term to long-term strategy to sustain sound financial management Recommendations -WTE
THANK YOU 34