chapter 6 - default. annual...chapter 6 – statement of financial position 3 released april 2012...

Departmental Financial Reporting Framework Guide

THE STATEMENT OF FINANCIAL POSITION

Chapter 6

For the year ended 31 March 2013

Please note: The Departmental Financial Reporting Framework Guide is being

enhanced as part of the cash-to-accrual process. From 2013/14 the Departmental

Financial Reporting Framework Guide will be split into two documents namely the

Departmental Financial Reporting Framework and the Departmental Financial Reporting

Guide. The former document focuses on modified cash principles in a format ordinarily

used by other public sector accounting standard setters, whereas the latter will provide

detailed guidance on the principles stated in the Departmental Financial Reporting

Framework.

Chapter 6 – Statement of financial position

2 Released April 2012 (Updated October 2012)

Table of Contents

A. BACKGROUND .......................................................................................................................... 3

B. ASSETS ...................................................................................................................................... 4

13. Unauthorised expenditure ............................................................................................................... 4

14. Fruitless and wasteful expenditure ................................................................................................ 17

15. Cash and cash equivalents ........................................................................................................... 18

16. Other financial assets .................................................................................................................... 20

17. Prepayments and advances .......................................................................................................... 21

18. Receivables ................................................................................................................................... 24

19. Investments ................................................................................................................................... 30

20. Loans ............................................................................................................................................. 33

C. LIABILITIES .............................................................................................................................. 34

21. Voted funds to be surrendered to the revenue fund...................................................................... 34

22. Departmental revenue to be surrendered to the Revenue Fund .................................................. 36

23. Direct Exchequer Receipts to be surrendered to the Revenue Fund ........................................... 37

24. Bank overdraft ............................................................................................................................... 38

25. Payables (current) ......................................................................................................................... 39

26. Payables (non-current) .................................................................................................................. 42

D. Net Assets ................................................................................................................................ 43

ANNEXURE A: Amendments made to chapter ....................................................................... 45



A. BACKGROUND

A statement of financial position illustrates, at the end of the last day of a reporting period, an

entity’s assets and liabilities. Accordingly the title of the statement of financial position contains

the phrase “at 31 March 2012”. This statement was previously referred to as a “Balance Sheet”.

Section 40(1)(b) of the PFMA and TR 18.2 require the inclusion of a statement of financial

position in the financial statements.

The difference between total assets and total liabilities (assuming the value of assets is higher

than the value of its liabilities) is termed net assets. In the private sector environment equity

belongs to the owners and is made up by share capital and reserves. Under the cash basis

system of accounting, government department items included under this heading will be

surrendered to the Revenue Fund. Where there is an immediate obligation to surrender, for

example the difference between amount voted and expenditure must be surrendered; the amount

is shown as a liability. In the private sector, the directors can propose that a dividend be declared

out of the surplus, but until the dividend is in fact declared, the surplus is retained in equity

without amendment for the dividend. The dividend declaration creates the obligation to recognise

a liability, not the fact that it has been proposed or that there is a surplus. In a similar way, until

the department has a present obligation to transfer monies to the Revenue Fund, it is regarded as

net assets.

Some of the items listed in the statement of financial position are not applicable to most

departments such as investments, other financial assets and provisions and in such cases these

descriptions must not be included in the statement of financial position.

In other words if a line item in the statement of financial position has a nil balance, and the

comparative figure is also nil, then the line item must be deleted from the statement of financial

position, and the numbering of notes be accordingly adjusted.

All of the line items on the face of the statement of financial position are covered by notes within

the financial statements. For the purposes of this guide the paragraph numbers correspond to the

note references on the face of the statement of financial position.



B. ASSETS

a) Definition

The main categories of recognised assets in the Statement of Financial Position are as follows:

Unauthorised expenditure;

Fruitless and wasteful expenditure;

Cash and cash equivalents;

Other financial assets;

Prepayments and advances;

Investments;

Loans;

Aid assistance receivable; and

Receivables;

13. Unauthorised expenditure

a) Definition

An asset is a resource controlled by an entity as a result of past events, and from which

future economic benefits or service potential is expected to flow to the entity.

Unauthorised Expenditure is the overspending of a vote or a main division within a vote; or

expenditure that was not made in accordance with the purpose of a vote or, in the case of

a main division, not in accordance with the purpose of the main division.



b) Accounting policy

c) Guidance

As indicated below there are two types of unauthorised expenditure:

Unauthorised expenditure

overspending of a vote or a

main division within a vote

expenditure that was not made in

accordance with the purpose of a

vote or, in the case of a main

division, not in accordance with the

purpose of the main division

A department (or programme)

spends more than it’s allocation.

The over expenditure is usually

funded from an overdraft facility

A department (or programme)

incurs such expenditure using

voted funds

The additional expenditure was not funded

by the NRF/PRF and the unauthorised

expenditure is therefore not surrendered to

either the NRF/PRF

The unathorised expenditure was

funded by the NRF/PRF and the

amount spent is therefore paid

back to the NRF/PRF

The procedures for the treatment of unauthorised expenditure are described below:

When confirmed unauthorised expenditure is recognised as an asset in the statement of

financial position until such time as the expenditure is either approved by the relevant

authority, recovered from the responsible person or written off as irrecoverable in the

statement of financial performance.

Unauthorised expenditure approved with funding is derecognised in the statement of

financial position when the unauthorised expenditure is approved and the related funds

are received.

Where the amount is approved without funding it is recognised as expenditure in the

statement of financial performance on the date stipulated in the Act.



Discovery, investigation and reporting of unauthorised expenditure (recommended

procedures)

(a) any employee who becomes aware of or suspects the occurrence of unauthorised

expenditure should immediately report, in writing, such expenditure to the Accounting Officer

or his/her delegate;

(b) on discovery of alleged unauthorised expenditure, such expenditure must be left in the

expense account and the Accounting Officer or his/her delegate must record the details of the

expenditure in an unauthorised expenditure register (an example of such a register is

included in this guide);

(c) the Accounting Officer or his/her delegate must investigate the alleged unauthorised

expenditure to determine whether the expenditure meets the definition of unauthorised

expenditure. During the period of the investigation the expenditure must remain in the

expense account. The results of the investigation will determine the appropriate action to be

taken regarding this expenditure;

(d) should the investigation reveal that the expenditure is in fact valid expenditure and therefore

does not constitute unauthorised expenditure the details of the expenditure must be retained

in the register for the purposes of completion (and to provide an appropriate audit trail). The

register should therefore be updated to reflect the outcome of the investigation;

(e) once an investigation has been concluded and the results verify that the expenditure

constitutes unauthorised expenditure, the Accounting Officer must immediately report, in

writing, the particulars of the unauthorised expenditure to the relevant Treasury;

(f) valid unauthorised expenditure is no longer disallowed by reducing the total expenditure in

the statement of financial performance. The unauthorised expenditure “receivable” is

however created by crediting the exchequer grant account of the department (i.e. reducing

the available vote) and debiting a corresponding receivable/debt account in the statement of

financial position.

DR Unauthorised expenditure (POS) XXX

The investigation on alleged unauthorised expenditure should be concluded by the end of the

financial year (or prior to the finalisation of the external audit if discovered only after year-

end). This will ensure that the necessary steps have been taken and that appropriate

disclosures are made in the final annual report.



CR Exchequer grant account (POS) XXX

This entry must be recorded as soon as the investigation reveals that the expenditure meets

the definition of unauthorised expenditure. The register should be updated to reflect the

outcome of the investigation;

(g) in addition to (f) above the unauthorised expenditure must also be included in the entity’s

monthly report on revenue and expenditure as submitted by the Accounting Officer to the

relevant Treasury. (The monthly report on revenue and expenditure is separate from the

report prepared by the Accounting Officer dealing with the specific occurrence of

unauthorised expenditure referred to in (e) above);

Obtaining approval for unauthorised expenditure

(h) based on the reports submitted by the relevant Accounting Officers, the relevant Auditor-

General’s audit reports and other sources of information, National Treasury prepares a report

detailing the various instances of unauthorised expenditure relating to all entities. The report

on unauthorised expenditure is submitted to the Standing Committee on Public Accounts

(SCOPA) and advises on:

i. Approval/non-approval of the unauthorised expenditure; and

ii. How the unauthorised expenditure should be funded.

(i) based on the report submitted to it in terms of (h), SCOPA will make a recommendation to

Parliament whether or not to approve the unauthorised expenditure. If SCOPA recommends

the approval of the unauthorised expenditure it must also recommend whether the

unauthorised expenditure should be treated as a direct charge against a Revenue Fund or a

charge against the funds allocated for the next or future years under a relevant vote;

(j) SCOPA then presents the report to Parliament for consideration. If Parliament approves the

unauthorised expenditure the report is sent to the Minister of Finance for inclusion in the

Finance Bill. The Minister of Finance tables the Finance Bill in Parliament. Only once the

Finance Bill has been passed by Parliament is the unauthorised expenditure formally

approved;

DR Bank XXX

CR Unauthorised expenditure (POS) XXX

The above entry is similar to the recovery of amounts due to the department by a debtor.



(k) if Parliament approves the amount of unauthorised expenditure but does not approve an

additional amount for the overspending, that amount becomes a charge against the funds

allocated for the next or future financial years under the relevant vote. In other words the

overspending must be funded by a department’s future savings achieved against its vote or

funds available due to reprioritisation of expenditure;

DR Relevant expenditure account (PER) – as expenditure XXX

CR Unauthorised expenditure (POS) XXX

*The programme and expenditure account that originally caused the unauthorised

expenditure is debited.

(l) if the unauthorised expenditure was approved with funding prior to or at the end of the

financial year but the funds were only received after 31 March, the department must disclose

this fact in the unauthorised expenditure note. The accounting entries can only be passed

once the funds have been received. Unauthorised expenditure is derecognised from the

statement of financial position when:

It is approved with funding and the department has received the funds from the relevant

revenue fund; or

It is approved without funding and the department charges the amount approved (or part

thereof) against its vote.

The above is mainly due to the fact the department operates on a modified cash basis of

accounting. Accordingly, no accounting entries are permissible when the department is still

waiting for the approved funding from the relevant revenue fund. The department should

however disclose this fact in the notes to its annual financial statements.

Since the amount received is not recognised as revenue in the statement of financial

performance or as appropriated funds in the appropriation statement, there is no reconciling

line item between the two statements.

The additional expenditure recognised in the statement of financial performance is a

reconciling item between the statement of financial performance and the appropriation

statement. The appropriation statement reflects the funding of the current years’ expenditure

and any expenditure relating to a prior period will be included in the reconciliation between

the statement of financial performance and the appropriation statement.



The above procedures are applicable to National Departments. Provincial Departments

should follow the same procedures in obtaining approval for unauthorised expenditure except

that they should substitute, where appropriate, the relevant equivalent provincial authorities.

This means that on a national level Parliament retains the sole authority to approve

unauthorised expenditure while on a provincial level this responsibility shifts to the relevant

Provincial Legislature.

Accruals are not expenditure as no money is spent as yet when they are disclosed.

Therefore accruals cannot result in unauthorised expenditure. Nonetheless, Departments

should monitor the level of commitments in the financial system. If the expenditure for the

year plus accruals exceed the department’s vote this may be emphasized in the auditor’s

report



The above procedures are illustrated in the diagram below.

Alleged unauthorised expenditure is discovered by a person(s)

Report to Accounting Officer

Conduct investigation

No

acco

un

tin

g e

ntr

ies

The Accounting Officer must immediately report the unauthorised expenditure in

writing in terms of section 38(1)(g) of the PFMA the relevant treasury and in terms of

TR 9.1.2 in the monthly report as required in terms of section 40(4)(b) of the PFMA

The Accounting Officer must in terms of section 38(1)(h) of the PFMA take effective

and appropriate disciplinary steps (in determining steps, TR 9.1.3 must be considered)

Unauthorised

expenditure must be

reported in the

annual report (as a

note to the financial

statements in terms

of TR 9.1.5

Unauthorised Expenditure

Either Or

Valid expenditure

No further action required

after updating register

DO NOT “Disallow” expenditure from

Statement of Financial Performance (PER) but

create unauthorised expenditure asset using

the exchequer grant account

Where losses or damages have

been incurred the procedures in

terms of TR 12 should be followed

UP

DA

TE

RE

GIS

TE

R

National Treasury’s Public Finance in consultation with the Budget Office submits a report to Parliament

(SCOPA) on unauthorised expenditure as reported in departmental annual report and advise on:

* approval/non-approval

* additional funds/charge against funds allocated for future financial years

Parliament does not approve unauthorised

expenditure in terms of section 34 of the PFMA

SCOPA recommends to Parliament to approve

unauthorised expenditure in terms of section

34(1) of the PFMA

Either Or

A debt is raised against

the official based on the

outcome of TR 12

Legislation tabled in

Parliament (Finance Bill)

Expense the unauthorised

expenditure asset to the

PER & recognise related

funding when received

Expense the

unauthorised expenditure

asset to the PER against

savings generated

Section 34(1)Section 34(2)

Refer to Department’s

Debt Policy and TR 11.4



Example 1: Unauthorised expenditure relating to expenditure exceeding the vote

During the year a department overspent its appropriated funds by R1,034,013. The over

expenditure relates to OSD payments that were not adequately budgeted for (i.e. the

department overspent on its compensation of employees). The over expenditure will

contribute to the net deficit for the year as reflected in the extract of the PER below.

R'000

Total revenue 14,609,263

Total expenditure (15,474,826)

Surplus/(deficit) for the year (865,563)

Reconciliation of Net Surplus/(Deficit) for the year

Voted funds (1,034,013)

Departmental revenue 148,544

Local and foreign aid assistance 19,906

SURPLUS/(DEFICIT) FOR THE YEAR (865,563)

The unauthorised expenditure is recorded in the POS by way of the following entries:

Dr Unauthorised expenditure 1,034,013

Cr Exchequer grant account 1,034,013

The impact of the above journal entry on the exchequer grant account is illustrated below:

Exchequer grant account

Total appropriated funds at beginning of the year

13,925,428 Funds requisitioned during the year

13,925,428

Y/E close of general account of the vote

13,925,428

Total expenditure incurred during the year

14,959,441 Unauthorised expenditure journal entry

1,034,013

28,884,869 28,884,869

Total expenditure includes the over expenditure on compensation of employees

From the above T-account it is clear that the department does not need to surrender any funds

to the relevant revenue fund. This is also reflected in the line item voted funds to be

surrendered to the revenue fund on the POS

R’000

Opening balance -

Transfer from statement of financial performance 1,034,013

Add: Unauthorised expenditure for current year (1,034,013)

Closing balance -



Example 2: Unauthorised expenditure relating to expenditure exceeding the vote &

expenditure incurred that was not in accordance with the purpose of the vote / main

division within a vote

During the year a department overspent its appropriated funds by R1,034,013 (as per

Example 1 above). In addition, the department used R192,730 of its funds inappropriately

which resulted in the expense being classified unauthorised expenditure. The total

unauthorised expenditure is recorded in the POS by way of the following entries:

Dr Unauthorised expenditure 1,226,743 (1,034,013 + 192,730)

Cr Exchequer grant account 1,226,743

The impact of the above journal entry on the exchequer grant account is illustrated below:


Total appropriated funds at beginning of the year

13,925,428 Funds requisitioned during the year

13,925,428

Y/E close of general account of the vote

13,925,428

Total expenditure incurred during the year

14,959,441 Unauthorised expenditure journal entry

1,226,743

Voted funds to be surrendered to the revenue fund

192,730

29,077,599 29,077,599

From the above T-account it is clear that the department must surrender the R192,730 to the

relevant revenue fund. This is because the funds were inappropriately used and should not

have been funded by the revenue fund. The amount due is reflected in the line item voted

funds to be surrendered to the revenue fund on the POS as follows:

R’000

Opening balance -



Closing balance (192,730)

If the amount is paid over before the finalisation of the AFS then the note will appear as

follows:

R’000

Opening balance -



Paid during the year 192,730

Closing balance -



Example 3: Approval of unauthorised expenditure

In a subsequent period the Legislature approved the unauthorised expenditure incurred by the

department as follows:

(a) R1,034,013 – approved with funding (the funds were subsequently received)

(b) R192,730 – approved without funding

The entry to record the above is as follows:

Dr Bank 1,034,013 (a)

Dr Expenditure* 192,730 (b)

Cr Unauthorised expenditure 1,226,743 (a) + (b)

* The relevant programme and expenditure item against which the expenditure was originally

incurred is debited.

The impact of the above journal entry on the unauthorised expenditure general ledger account

is illustrated below:

Unauthorised expenditure

Balance at beginning of the year

1,226,743 Funds received 1,034,013

Amount charged to expenditure

192,730

- -



Example 4: Unauthorised expenditure approved without funding and has not been written off

The department has unauthorised expenditure of R27m in 2007/08. The unauthorised expenditure is

approved without funding in 2012/13. The amount will be recorded as follows:

Unauthorised Expenditure

2012/13

2011/12

Reconciliation of unauthorised expenditure

Opening balance

27

27

Unauthorised expenditure - discovered in the current year 20

Less: Amounts approved by Parliament/Legislature with funding

Less: Amounts approved by Parliament/Legislature without funding and written off in the statement of financial performance

Current (27)

Capital

Transfers and subsidies

Less: Amounts transferred to receivables for recovery

Unauthorised expenditure awaiting authorization / write-off

-

27

Unauthorised expenditure that was approved without funding and has not been written-off in the PER

must remain on the POS as “unauthorized expenditure” until it is written off (against savings) in the

PER. Departments should disclose the reasons for not writing off any unauthorised expenditure

previously approved without funding with the date on which it was approved by SCOPA.

file:///C:/Users/0438/Documents/work%20folder/2.%20%20Annual%20Financial%20Statements/0438/Work%20folder/AFS%200910/2009-09-30_DepAFS_v3-Test1.1.1.1.1.1.10%20(version16).xls%23RANGE!A1498



Register of Unauthorised Expenditure (UE)

Department ABC

Date of

discovery

Reported to

Accounting

Officer

(date)

Transaction details Responsible

person

(committed

the UE)

Status (refer to key) General comments

Payment

date

Payment

number

Amount Incident description UI DP AA A

Key: UI - Unauthorised expenditure Under Investigation

DP - Disciplinary process initiated against responsible person

AA - Awaiting approval (by Parliament/Legislature)

A - Approved (by Parliament/Legislature)



e) Legislation

s34(1)(2)

(PFMA)

(1) Unauthorised expenditure does not become a charge against a Revenue Fund except when-

(a) the expenditure is an overspending of a vote and Parliament or a provincial legislature, as may be appropriate, approves, as a direct charge against the Relevant Fund, an additional amount for that vote which covers the overspending; or

(b) the expenditure is unauthorised for another reason and Parliament or a provincial legislature, as may be appropriate, authorises the expenditure as a direct charge against the relevant Revenue Fund.

(2) If parliament or a provincial legislature does not approve in terms of subsection (1)(a) an additional amount for the amount of any overspending, that amount becomes a charge against the funds allocated for the next or future financial years under the relevant vote.

s38(1)(g)& (h)

(PFMA)

(1) The accounting officer for a department-

(g) on discovery of any unauthorised, irregular or fruitless and wasteful expenditure, must immediately report, in writing, particulars of the expenditure to the relevant treasury and in the case of irregular expenditure involving the procurement of goods or services, also to the relevant tender board;

s40(4)(b)

(PFMA)

(4) The accounting officer of a department must-

(b) each month submit information in the prescribed format on actual revenue and expenditure for the preceding month and the amounts anticipated for that month.

TR 9.1.1 The accounting officer of an institution must exercise all reasonable care to prevent and detect unauthorised, irregular, fruitless and wasteful expenditure, and must for this purpose implement effective, efficient and transparent processes of financial and risk management.

TR 9.1.2 When an official of an institution discovers unauthorised, irregular or fruitless and wasteful expenditure, that official must immediately report such expenditure to the accounting officer. In the case of a department, such expenditure must also be reported in the monthly report, as required by section 40(4)(b) of the Act. Irregular expenditure incurred by a department in contravention of tender procedures must also be brought to the notice of the relevant tender board or procurement authority, whichever applicable.

TR 9.1.3 When an accounting officer determines the appropriateness of disciplinary steps against an official in terms of section 38(1)(g) of the Act, the accounting officer must take into account –

(a) the circumstances of the transgression;

(b) the extent of the expenditure involved; and

(c) the nature and seriousness of the transgression.

TR 9.1.4 The recovery of losses or damages resulting from unauthorised, irregular or fruitless and wasteful expenditure must be dealt with in accordance with regulation 12.

TR 9.1.5 The amount of the unauthorised, irregular, fruitless and wasteful expenditure must be disclosed as a note to the annual financial statements of the institution.



TR 11.4.1 An accounting officer may only write off debts owed to the State if he or she is satisfied that –

(a) all reasonable steps have been taken to recover the debt and the debt is irrecoverable, or,

(b) he or she is convinced that –

(i) recovery of the debt would be uneconomical;

(ii) recovery would cause undue hardship to the debtor or his or her dependants; or

(iii) it would be to the advantage of the state to effect a settlement of its claim or to waive the claim.

TR 11.4.2 An accounting officer must ensure that all debts written off are done in accordance with a write off policy determined by the accounting officer.

TR 11.4.3 All debts written off must be disclosed in the annual financial statements, indicating the policy in terms of which the debt was written off.

TR 12.7.1 Losses or damages suffered by an institution because of an act committed or omitted by an official, must be recovered from such an official if that official is liable in law.

TR 12.7.2 The accounting officer must determine the amount of the loss or damage and, in writing, request that official to pay the amount within 30 days or in reasonable installments. If the official fails to comply with the request, the matter must be handed to the State Attorney for the recovery of the loss or damage.

TR 12.7.3 A claim against an official must be waived if the conditions in paragraph 12.2.1(a) to (g) are not applicable.

TR 12.7.4 If in doubt, the accounting officer of the institution must consult the State Attorney on questions of law in the implementation of paragraphs 12.7.1 and 12.7.3.

14. Fruitless and wasteful expenditure

a) Definition


Fruitless and wasteful expenditure means expenditure which was made in vain and would

have been avoided had reasonable care been exercised.

Fruitless and wasteful expenditure is recognised as expenditure in the statement of financial

performance according to the nature of the payment and not as a separate line item on the

face of the statement. If the expenditure is recoverable it is treated as an asset until it is

recovered from the responsible person or written off as irrecoverable in the statement of

financial performance.



c) Guidance

15. Cash and cash equivalents

a) Definition

In other words cash and cash equivalents consist of cash on hand and balances with banks and

investments in money market instruments.


c) Guidance

“Cash equivalents” are items that are immediately available or repayable on demand. They differ from

accounts receivable in that although these accounts are payable to the entity, they are not payable on

demand. Cash and cash equivalents include:

With effect from 2008/09 financial year, Fruitless and wasteful expenditure is no longer

disallowed into a suspense account. This means that fruitless and wasteful expenditure from

2008/09 onwards will no longer affect the statement of financial position as was the case in

previous years. It is disclosed in a disclosure note similar to Irregular Expenditure. As a result,

once Fruitless and Wasteful Expenditure that is reflected on Note 14, which emanates from

2007/08 financial years and earlier, has been cleared, this Note 13 will no longer be required.

For guidance on Fruitless and Wasteful Expenditure refer to Chapter 8.

Cash comprises cash on hand and demand deposits.

Cash equivalents are short-term highly liquid investments that are readily convertible into

known amounts of cash and which are subject to an insignificant risk of change in value.

Cash and cash equivalents are carried in the statement of financial position at cost.

Bank overdrafts are shown separately on the face of the statement of financial position.

For the purposes of the cash flow statement, cash and cash equivalents comprise cash on

hand, deposits held, other short-term highly liquid investments and bank overdrafts.



bank account balances (both domestic and foreign);

cash awaiting banking;

petty cash/imprest floats; and

cash in transit.

short-term deposits;

deposits at call; and

other highly liquid investments that are readily convertible to cash on hand at the entity’s option.

The table below clarifies the type of transactions and/or balances that may arise in a National or

Provincial department that is either included or excluded from cash and cash equivalents:

Includes Excludes

Consolidated Paymaster general account

(Debit balance)

Paymaster general account (Credit balance –

will therefore be reflected under current

liabilities as a bank overdraft)

Short-term investments that are easily

convertible into cash (e.g. notice deposits,

fixed deposits or call accounts)

Investment in a trading entity or a public

entity, these are included under the line item

investments

Commercial bank accounts

Balances with banks, investments in money market instruments and demand deposits form

part of cash and cash equivalents. Most departments do not have investments in money market

instruments, but in the case where the department has money in call accounts or money market

instruments, it should be disclosed here.

If there were no outstanding deposits or payments, the bank statement balance and the ledger

balance would have been the same. As this may not always be the case, the bank statement balance

and the ledger balance are reconciled on a regular basis. The general ledger balance reconciled to

the bank statement is shown in the notes under the description Paymaster General Account which will

either form part of “Cash and cash equivalents” or “Bank overdraft” in the statement of financial

position.

Should cash on hand (petty cash balances) and/or cash in transit be insignificant, i.e. smaller than

one thousand rand, these amounts may be included in the Paymaster General Account.

Departments are advised to carefully consider bank accounts administered by entities on its

behalf. If the bank account is opened in the name of the department then it may have to be

accounted for by the department in its financial statements.



d) Legislation

TR 15.10.1.2 For purposes of this regulation, sound cash management includes –

(a) collecting revenue when it is due and banking it promptly;

(b) making payments, including transfers and subsidies to other levels of government and non-government entities, no earlier than necessary, with due regard for efficient, effective and economical programme delivery and the government’s normal terms for account payments;

(c) avoiding prepayments for goods or services (i.e. payments in advance of the receipt of goods or services), unless required by the contractual arrangements with the supplier;

(d) accepting discounts to effect early payment only when the payment has been included in the monthly cash flow estimates provided to the relevant treasury;

(e) pursuing debtors with appropriate sensitivity and rigour to ensure that amounts receivable by the government are collected and banked promptly;

(f) accurately forecasting the institution’s cash flow requirements so that the National Treasury can optimise its central cash management responsibilities on behalf of the government;

(g) timing the in and outflow of cash;

(h) recognizing the time value of money, i.e. economically, efficiently and effectively managing cash;

(i) taking any other action that avoids locking up money unnecessarily and inefficiently, such as managing inventories to the minimum level necessary for efficient and effective programme delivery, and selling surplus or underutilised assets;

(j) performing bank reconciliations on a daily basis to detect any unauthorised entries;

(k) ensuring that dishonoured warrant vouchers and cheques are followed up immediately; and

(l) the separation of duties to minimise the incidence of fraud.

16. Other financial assets

a) Definition

*including rights under a binding arrangement such as amounts due from individuals who have signed

an acknowledgment of debt.


Financial assets include:

Cash (Disclosed in note 14 and not note 15);

contractual rights* to receive cash or another financial asset from another entity;

contractual rights* to exchange financial instruments with another entity under conditions

that are potentially favourable; and

equity instruments of another entity.

Other financial assets are carried in the statement of financial position at cost.



c) Guidance

Within this note the major categories should be grouped, but all material items should be listed

separately. The total should equal to the value shown on the face of the statement of financial

position. Amounts disclosed elsewhere such as in the note on receivables, investments and cash and

cash equivalents should not be duplicated here.

17. Prepayments and advances

a) Definition


c) Guidance

Prepayments arise where for example at the end of the reporting period, the entity may have paid for

some services in advance of receiving or using the services (for example, rent may be paid one

month in advance).

Prepayments are payments in advance for goods and services to be received in future. The

actual amount paid is known.

Advances are amounts made available to other entities or employees for expected operating

expenditure (S&T), as well as preliminary salary advances to employees who were employed

during the month and did not receive their salary at month end.

Amounts prepaid or advanced are recognised in the statement of financial position when the

payments are made and are derecognised as and when the goods/services are received or

the funds are utilised.

Prepayments and advances outstanding at the end of the year are carried in the statement of

financial position at cost.

The SOCPEN advances relate to amounts advanced to the payment contractors to administer

the payment of social benefits to individuals on a monthly or bi-weekly basis e.g. child support

grants, old age pensions etc.



Included in this category are accounts used to record advances made to and due from officials who

are required to perform his/her duties away from his/her headquarters or magisterial district. The

types of advances are:

Normal advance: A Normal Advance is an Advance that is paid to officials before expenses are

incurred. An Advance is usually granted to an official to cover Travel and Subsistence cost while

away from his/her headquarters (magisterial district).

Standing advance: A Standing Advance is granted to officials who have Travel and Subsistence and

casual expenses on a regular basis and where the use of the ordinary Travel and Subsistence

Advance would cause unnecessary administration.

The treatment of prepayments relating to the purchase of goods / services is discussed below:

Expensed immediately Recorded in a suspense account and

expensed on receipt of goods / services

Dr Relevant expenditure account

Cr Bank

Dr Prepayments and advances

Cr Bank

when the department has budgeted for the

entire payment in the current financial period;

AND

the goods / services have been received

shortly after the payment was made; OR

the amount relates to a long-term

commitment and approval was obtained from

the Accounting Officer to immediately

expense the entire amount (N1).

when the department has budgeted for the

entire payment in the current financial period

and the goods / services have been received

in the same period (N2); OR

when the payment is made in the current

financial year and it is known that the goods /

services will be received in the following

financial year (N3).

(N1) – this arises out of rare transactions where the supplier requires an up-front payment from the

department to secure the goods/services that will be received over (or beyond) the MTEF.

(N2) – in this scenario the department will record the amount paid as a prepayment and will reverse

the transaction to the appropriate expense account upon receipt of the goods / service as follows:

Dr Relevant expense account

Cr Prepayments and advances

(N3) – in this scenario the department advances the funds to the supplier for the purchase of the

goods / service and the purchase will not be recorded as an expense against the vote of the

department. The department must therefore ensure that sufficient funds are available in the following

year’s vote to cover the cost of the goods / services expensed in the statement of financial

performance when received.



e) Legislation


(c) avoiding prepayments for goods or services (i.e. payments in advance of the

receipt of goods or services, unless required by the contractual arrangements

with the supplier;

Example: Prepayment made for the purchase of a capital good received in the

subsequent financial year

Department X has a capital budget of R10 million for the 2011/12 financial year.

On 20 February 2012 the department places an order with a supplier for the purchase of a

capital asset with a cost of R500,000. The supplier requires a 50% deposit and will deliver the

asset within 3 months of the order date. The payment is made on 25 February 2012.

The department records the prepayment made on 25/02 as follows:

Dr Prepayments and advances 250,000

Cr Bank 250,000

Assuming that the department spent the remaining R9.5 million capital budget during the year

it will reflect a saving of R500,000 at the end of the financial year.

The department makes an application to the relevant treasury to “roll-over” the saving into the

new financial year and the funds are reallocated to the capital budget for 2012/2013. Upon

receipt of the asset in May 2012 the department records the payment as follows:

Dr Purchase of a capital asset 500,000

Cr Prepayments and advances 250,000

Cr Bank 250,000

The purchase is charged against the vote of the department (i.e. the roll-over from the

previous financial year).



18. Receivables

a) Definition


c) Guidance

In an accrual environment receivables comprise of amounts owed to the entity by others, including

other government entities and the public. These types of receivables may include:

interest receivable;

amounts due in relation to goods and services provided to others;

amounts due in relation to fines and penalties levied by the entity;

amounts due from another government entity or a different level of government in relation to non-

reciprocal transfers to the entity; and

taxation receivables.

At present, only some receivables are recognised in the statement of financial position such as those

that arise from cash payments that are recoverable from another party. All other receivables are

however disclosed separately as part of the notes to enhance the usefulness of the financial

statements.

Receivables comprise of amounts due to the State as a result of the sales of goods or

provision of services or the recovery of expenditure incurred by the state.

Receivables included in the statement of financial position arise from cash payments made

that are recoverable from another party (including departmental employees) and are

derecognised upon recovery or write-off

Receivables outstanding at year-end are carried in the statement of financial position at cost

plus any accrued interest. Amounts that are potentially irrecoverable are included in the

disclosure notes.



The recognised receivables are described in more detail below:

Staff debtors

Amounts due by staff members must be identified by category and must be included in the statement

of financial position. As amounts due by staff members are normally payable in a short period, it is

highly unlikely that non-current staff debt exist.

All staff debts should be included under the heading “receivables” and not “loans”. Any “recoverable

income and interest” on such recoverable income relating to staff debt must be included in

recoverable revenue in the net assets section of the statement of financial position.

Other receivables

This sub-note includes any other receivables per major categories and should also include any

clearing accounts.

Transactions may be posted to a clearing (suspense) account if its correct allocation is not known at

the time. By the end of every month the transactions posted to a clearing account must be reallocated

to the correct ledger account. All incorrectly allocated transactions must be corrected by passing

journal entries, before the end of that month.

Monthly reconciliations should be performed showing details of actions taken to establish correct

allocations and supported by verified authentic documents. An age analysis should be shown for all

outstanding balances in clearing (suspense) accounts.

A department may, in line with legislation, deposit funds to an account administered by reputable

attorneys or conveyances. Such deposits shall be recognised as receivables. Interest accruing on

such a deposit will be shown as departmental revenue in the statement of financial performance when

received. Interest due to the department at year-end should be included in the disclosure note on

receivables for departmental revenue.

Recoverable expenditure

This category mainly relates to the disallowance accounts. The purpose of all these accounts is to

keep track of those payments, expenses incurred or losses that cannot be declared as a legitimate

charge against the voted funds. In most cases the illegitimate charge is removed from voted funds

(expenditure ledgers) with a general journal by crediting the appropriate expenditure allocation and

debiting one of the disallowance accounts mentioned below. These transactions are kept in these

suspense accounts for the time that is required to complete one or more of the following steps:

Departments are required to indicate how old their receivables are in the notes to the financial

statements by separating the balance into receivables “older than three years”, “one to three

years” and “less than one year”. Debt falling within the first two categories does not imply that

the debt is of a long-term nature. It signals a possible weakness in the debt collection process

that should be investigated and addressed by the department.



The department investigates these transactions to determine whether the illegitimate charge should

be either recovered from the responsible official, outside supplier or be written off as a loss.

In cases where the illegitimate charge was caused due to theft the case is handed over to the South

African Police Service and the State Attorneys for investigation. The department may recover the

illegitimate charge if the responsible person(s) are successfully prosecuted in court. In some cases

these amounts will be written off as thefts if the expenditure cannot be recovered.

Disallowance accounts can be cleared in the following ways:

A receipt if the full amount of the disallowed amount is paid back.

A debt take-on if the disallowed amount will be paid back in instalments.

A Persal interface deduction for recovering private telephone expenses in one or more

instalments.

A general journal if approval was granted to write off the disallowance as a theft or loss.

These accounts will normally have debit balances at month and year close. Examples of disallowance

accounts are as follows:

Damage GG-vehicles: CA

Disallowance Miscellaneous: CA

Private Telephone: CA

Disallowance: Short lo in Progress: CA

Disallowance: Suppliers: CA

Refer to BAS Notice 4 of 2008

Trade receivables

Where an existing system is maintained to account for receivables and a credit balance (i.e.

recoverable income) is maintained in order to report a nil balance in the general ledger, the receivable

should be included with other debtors and the credit shown with recoverable revenue in the net assets

section of the statement of financial position.

Receivables with credit balances

The department may reclassify the receivable as a payable in the statement of financial position. This

determination should be based on the nature and size of the balance. Prior to reclassifying this

amount the department should investigate and follow up the reason and clearing of the credit balance.



If a conditional grant is administered by a provincial department on behalf of a national department,

the provincial department will be responsible for debts emanating from the conditional grant.

Where the provincial department incorrectly pays or overpays a beneficiary, the debt is recognised

in the books of the provincial department when there is a legal obligation to recover the money

from the beneficiary. This may or may not coincide with the signing of an acknowledgment of debt

by the beneficiary.

d) Legislation


(e) pursuing debtors with appropriate sensitivity and rigour to ensure that amounts receivable by the government are collected and banked promptly;

TR 17.1 Use of clearing and suspense accounts

TR17.1.1 All the transactions of an institution must be supported by authentic and verifiable source documents, clearly indicating the approved accounting allocation.

TR 17.1.2 Should it be necessary, in exceptional cases, to account for revenue and expenditure transactions in a clearing or suspense account because the classification has not been resolved, the accounting officer must ensure that –

(a) the sources of the transactions are easily identifiable;

(b) amounts included in clearing or suspense accounts are cleared and correctly allocated to the relevant cost centres on a monthly basis;

(c) monthly reconciliation’s are performed to confirm the balance of each account;

(d) reports are provided to the accounting officer about uncleared items on a monthly basis.

TR 17.1.3 In each month’s section 40(4) report, the accounting officer must certify that the forecast/projection for the remainder of the financial year adequately makes provision for all amounts not yet cleared from clearing and suspense accounts.

TR 17.2 Availability of financial information [Section 40(1)(a) of the PFMA]

17.2.1 Accounting officers of institutions must, subject to the provisions of the relevant national or provincial legislation, retain all financial information in its original form, as follows –

(a) information relating to one financial year – for one year after the audit report for the financial year in question has been tabled in Parliament or the provincial legislature; or

(b) information relating to more than one financial year – for one year after the date of the audit report for the last of the financial years to which the information relates.

17.2.2 After the expiry of the above retention periods, the information may, if required, be secured in an alternative form that ensures the integrity and reliability of the data and ensures that the information can be reproduced, if necessary, as permissible evidence in a court of law.

17.2.3 Irrespective of paragraph 17.2.1, the following standards apply to the retention of certain types of record –

Type of record Years after which records can be disposed of



General ledger and cash books or similar records 15

Main transaction summary records, including general journals and transaction summaries

Internal audit reports

System appraisals

10

Primary evidentiary records, including copies of forms issued for value, vouchers to support payments made, pay sheets, returned warrant vouchers or cheques, invoices and similar records associated with the receipt or payment of money

Subsidiary ledgers, including inventory cards and records relating to assets no longer held or liabilities that have been discharged

5

Supplementary accounting records, including, for example, cash register strips, bank statements and time sheets

5

General and incidental source documents not included above, including stock issue and receivable notes, copies of financial orders (other than copies for substantiating payments or for unperformed contracts), bank deposit books and post registers

5

17.2.4 When financial information is required as evidence in proceedings before a court, Parliament, a provincial legislature, an official inquiry or otherwise, or for purposes of an audit, it must be secured in its then current form until no longer required, even if the National Archivist has authorised its disposal.

17.3 Changes to financial systems

17.3.1 Institutions may not amend existing or institute new computerized systems that will affect financial administration without the prior written approval of the National Treasury.

TR 11.2.1 Treasury Regulations 11.2.1

”The accounting officer of an institution must take effective and appropriate steps to timeously collect all money due to the institution including, as necessary –

(a) maintenance of proper accounts and records for all debtors, including amounts received in part payment; and

(b) referral of a matter to the State Attorney, where economical, to consider a legal demand and possible legal proceedings in a court of law.”

38(1)(c) (PFMA)

PFMA S 38(1)(c)

“The accounting officer for a department -

(c) must take effective and appropriate steps to-

i collect all money due to the department

ii prevent unauthorised, irregular and fruitless and wasteful expenditure and losses resulting from criminal conduct; and

iii manage available working capital efficiently and economically.”

TR 11 11.1 Application

11.1.1 “This regulation applies to all debts accruing to an institution and includes any amount owing to or receivable by the institution, such as invoices for charges for goods or services, fees or fines outstanding.

11.2 Responsibility for the management of debtors

11.2.1 The accounting officer of an institution must take effective and appropriate steps to



timeously collect all money due to the institution including, as necessary –

(a) maintenance of proper accounts and records for all debtors, including amounts received in part payment; and

(b) referral of a matter to the State Attorney, where economical, to consider a legal demand and possible legal proceedings in a court of law.

11.3 Recovery of debts by installments

11.3.1 Unless otherwise determined by law or agreement, debts owing to the state may, at the discretion of the accounting officer of the institution, be recovered in installments.

11.4 Writing off of debts owing to the state

11.4.1 An accounting officer may only write off debts owed to the State if he or she is satisfied that –

(a) all reasonable steps have been taken to recover the debt and the debt is irrecoverable, or,

(b) he or she is convinced that –

(i) recovery of the debt would be uneconomical;

(ii) recovery would cause undue hardship to the debtor or his or her dependants; or

(iii) it would be to the advantage of the state to effect a settlement of its claim or to waive the claim.

11.4.2 An accounting officer must ensure that all debts written off are done in accordance with a write off policy determined by the accounting officer.

11.4.3 All debts written off must be disclosed in the annual financial statements, indicating the policy in terms of which the debt was written off.

11.5 Interest payable on debts to the state

11.5.1 Interest must be charged on debts to the state at the interest rate determined by the Minister of Finance in terms of section 80 of the Act.”



19. Investments

a) Definition


Investments are assets held by an entity primarily for the accretion of wealth through receipt

of distributions (such as interest, royalties, dividends and rentals), for capital appreciation.

An associate is an entity, including an unincorporated entity such as a partnership, in which

the investor has significant influence and which is neither a controlled entity nor a joint venture

of the investor.

Significant influence is the power to participate in the financial and operating policy decisions

of the investee, but is not control over those policies.

A joint venture is a binding arrangement whereby two or more parties are committed to

undertake an activity that is subject to joint control.

Joint control is the agreed sharing of control over an activity by a binding arrangement, and

exists only when the strategic financial and operating decisions relating to the activity require

the unanimous consent of the parties sharing control (the venturers)

A controlled entity is an entity, including an unincorporated entity such as a partnership, that

is under the control of another entity (known as the controlling entity).

Control is the power to govern the financial and operating policies of another entity so as to

benefit from its activities.

Capitalised investments are shown at cost in the statement of financial position.

Investments are tested for an impairment loss whenever events or changes in circumstances

indicate that the investment may be impaired. Any impairment loss is included in the

disclosure notes.



c) Guidance

The following decision tree provides guidance as to how to account for investments in entities:

Does the public entity

have any issued share

capital?

Are the shares issued in

the name of the

department or its

executive authority?

YES

NO

Did the department pay

for the shares in the

current financial year?

YES

Is the public entity

accountable to the

executive authority of

the department?

YES Include entity in

Annexure 2A & 2B

Is the public entity

accountable to the

executive authority of

the department?

NO

YES

Inform the OAG for

appropriate guidance

NO

Follow ENTRY B

NO

Follow ENTRY A

YES

ENTRY A: Investments are usually accounted for as shown below when the acquisition (e.g. through

purchase or transfer) is made:

DR Transfers and subsidies expense XXX

CR Bank account XXX

The payment is usually budgeted for as an expense under transfers and subsidies, therefore the

amount should first be recorded in the PER and then capitalised to the POS as follows:

DR Investment account XXX

CR Capitalisation reserve (net assets) XXX

ENTRY B: In some instances departments may discover investments acquired in prior periods which

should be recognised in the statement of financial position. The accounting entry to recognise this

investment is as follows:

DR Investment account XXX

CR Capitalisation reserve (net assets) XXX

Where an investment has been impaired, disclosure should be made in the “Provisions” disclosure

note.



Payments made to entities (such as public entities), other than for the acquisition of goods/services,

can be divided into 3 categories as illustrated below:

A department should identify the intention of the transfer in order to appropriately account for the

payment in the statement of financial position or statement of financial performance. The department

either:

expects the entity to repay the money back in instalments or on demand with interest (paid at

the end or throughout the period of the loan):

DR Loans (note 19) XXX

CR Bank account XXX

provides funds for a particular financial year to a public entity to effectively deliver on its

legislative mandate and to exercise functions related to its mandate without expecting the

entity to refund the department:

DR Transfers & subsidies (note 10) XXX

CR Bank account XXX

purchases an ownership interest in the public entity:

DR Investments (note 18) XXX

CR Bank account XXX

Where uncertainty exists, details of the transaction should be forwarded to the OAG to provide the

appropriate accounting treatment.

Payment made to

a public entity

Loan (repayable)

Budgetary support Current

Capital

Ownersip interest Associate

Joint venture

Controlled entity



d) Legislation

S 1

(PFMA)

A controlled entity is an entity under the control of another entity. Ownership control is defined in section 1 of the PFMA as: ”the ability to exercise any of the following powers to govern the financial

and operating policies of the entity in order to obtain benefits from its activities:

a) to appoint or remove all, or the majority of, the members of that entity’s board of directors or equivalent governing body;

b) to appoint or remove that entity’s chief executive officer,

c) to cast all, or the majority of, the votes at meetings of that board of directors or equivalent governing body; or

d) to control all, or the majority of, the voting rights at a general meeting of that entity.”

20. Loans

a) Definition


A loan is an arrangement in which a lender gives money to a borrower, and the borrower

agrees to repay the money, usually along with interest, at some future point(s) in time.

Usually, there is a predetermined time for repaying a loan, and generally the lender has to

bear the risk that the borrower may not repay a loan

Loans are recognised in the statement of financial position when the cash is paid to the

beneficiary. Loans that are outstanding at year-end are carried in the statement of financial

position at cost plus accrued interest.

Amounts that are potentially irrecoverable are included in the disclosure notes.



C. LIABILITIES

a) Definition

The main categories of recognised liabilities in the Statement of Financial Position are as follows:

Voted funds to be surrendered to the revenue fund;

Departmental revenue and direct exchequer receipts to be surrendered to the revenue fund;

Bank overdraft;

Aid assistance repayable;

Aid assistance unutilised; and

Payables.

21. Voted funds to be surrendered to the revenue fund

a) Definition

b) Guidance

The difference between the voted amount and the amount actually expended during a financial year

(surplus)/underspending per the appropriation statement) is repayable to the revenue fund and is

included in the statement of financial position item with the heading Voted funds to be surrendered.

The actual amount paid over to the relevant fund excludes any voted funds not requested or received

during the financial year. The amount due to the relevant revenue fund is calculated in the

“exchequer grant account” as shown below:

A liability is a present obligation arising from past events, the settlement of which is expected

to result in an outflow of resources embodying economic benefits or service potential.

The portion of voted funds not spent by a department at the end of the financial year.




Opening journal entry (appropriated amount

available to a department)

Requisition of funds made during the year

credited to this account (the balance on this

account during the year will indicate the

drawings still available to the department)

Total expenditure incurred during the year (all

expenditure accounts are closed-off to this

account)

Closing journal entry of the general account of

the vote (representing total final appropriation)

XXX XXX

DEBIT balance in this account means that

the department’s expenditure was more than

the Appropriation Act (refer to note 11 –

unauthorised expenditure). This amount must

be journalised to the unauthorised expenditure

asset account.

CREDIT balance in this account means that

the department’s expenditure was less than the

Appropriation Act (refer to note 20 – voted

funds to be surrendered to the revenue fund).

This amount must be paid to the relevant

revenue fund.

The credit balance in the exchequer grant account is presented as “voted funds to be surrendered to

the revenue fund” in the statement of financial position.

c) Legislation

TR 15.8.1 Voted funds to be surrendered

“At the end of each financial year, and after the books of account of a department have been closed, the accounting officer must surrender to the relevant treasury any unexpended voted money, for the re-depositing into the Exchequer bank account of the relevant revenue fund.”



22. Departmental revenue to be surrendered to the Revenue Fund

a) Definition

b) Guidance

This includes all departmental revenue received by a national/provincial department that cannot be

retained by it, but which must be surrendered to the National/Provincial Revenue Fund. For example,

interest and rent on land collected on behalf of the Revenue Fund.

This includes aid assistance from donors that was not used at the end of the project, which donors

allow the department to maintain, that should be paid over to the revenue fund.

The amount due to the relevant revenue fund is calculated in the “revenue accrual account” as shown

below:

Revenue accrual account

Total amount paid over to the relevant revenue

fund during the financial year

(from the General account of revenue account)

Total amount recorded as departmental

revenue in the general ledger

(from the various departmental revenue

accounts)

XXX XXX

DEBIT balance in this account means that

too much revenue was paid over to the

relevant revenue fund.

CREDIT balance in this account means that

too little was paid over to the relevant revenue

fund.

The credit balance in the exchequer grant account is presented as “departmental revenue to be

surrendered to the revenue fund” in the statement of financial position.

If a public entity collects revenue from taxes or the sale of goods and services that is due to the

national/provincial revenue fund these funds be surrendered should flow through the line department

responsible for the public entity. This is done to ensure that the accounts of the relevant revenue fund

reconcile and that revenue in the consolidated statements is an accurate reflection of amounts

Departmental revenue due to the relevant revenue fund.



received. The same principle usually applies to money due to the public entity, i.e. the funds flow from

the relevant revenue fund through the line department to the public entity.

According to section 87(1) of the North West Gambling Act (Act 2 of 2001), “all gambling levies,

licence fees, penalties, interest and any other monies payable in terms of the provisions of this Act

and all fines imposed in respect of offences under this Act, shall be paid to the Board for the benefit

of the Provincial Revenue Fund and the Board shall monthly pay such amounts over to the

Provincial Revenue Fund, furnishing such returns and information as the Provincial Treasury may

require.” Although no specific mention is made in the Act of the North West Department of

Economic Development and Tourism, the funds should flow to the Provincial Revenue fund via the

provincial department.

The Provincial Legislatures should not surrender voted funds and departmental revenue to the

Revenue Fund. This is in line with PFMA. According to PFMA 13(1)(a) and 13(5) “All money received

by the national government must be paid into the National Revenue Fund, except money received by

Parliament. Money received by Parliament …….must be paid into a bank account opened by the

institution concerned.”

c) Legislation

TR 15 Deposits into the revenue fund

TR 15.3.1 In terms of sections 11(3) and 21(2) of the Act, money is paid into the revenue fund by depositing it into a bank account in accordance with the configuration requirements prescribed above [TR 15.2].

TR 15.3.2 Money deposited into the Paymaster-General account must immediately be available to the relevant treasury for funding expenditure or investment according to its central cash management responsibilities.

23. Direct Exchequer Receipts to be surrendered to the Revenue Fund

a) Definition

Refer to Chapter 5 for guidance on this note.

Direct Exchequer Receipts due to the relevant revenue fund.



24. Bank overdraft

a) Definition

b) Guidance

A bank overdraft could arise where for example a department incurs unauthorised expenditure or

makes advances to other entities or staff members.

The bank overdraft is disclosed under Current Liabilities in the statement of financial position.

However for the purpose of the cash flow statement, cash and cash equivalents includes the bank

overdraft.

The amount by which withdrawals exceed deposits in the bank account of a department.

Departments are advised to ensure that there are sufficient funds available in the budget as well

as the bank before approving payments. Departments are reminded of the requirements of

Treasury Regulations 15 on Banking, cash management and investment.

Where a department does not have sufficient funds in its bank account and makes a payment

which is dishonoured by the bank, the transaction should be reversed because in reality no

payment took place. The transaction should be reversed even if the payment is dishonoured

days after reporting date.

However, where a department does not have sufficient funds in its bank account and the

payment is honoured by the bank, the transaction should not be reversed. This can occur if the

department has an overdraft facility with the bank.



25. Payables (current)

a) Definition

Payables are only raised when cash has flowed and are not raised if or when one department

provides a service to another department.


c) Guidance

Advances received

National Skills Fund (NSF) or a Sector Education Training Authority (SETA) may transfer funds to a

department in order for the department to carry out some skills training. There shall be an agreement

or similar document stating the relationship and the responsibilities of the two entities. Funds received

from NSF or SETA shall be treated as current advances received if such funds will be utilised within

12 months from financial year end date. Funds that are going to be utilised after 12 months from

period of financial year end date shall be allocated to non-current payables. Note that the difference

between this amount and the statutory appropriations of NSF or SETA’s is that the latter are amounts

budgeted for as a separate line item in the published budget.

Refer to Practice Note 9 of 2008/09 on Accounting for money received from the NSF for supporting

special projects on growth and development strategies in national and provincial departments.

Current payables comprise of all money owed by an entity which is due within one year after

the reporting date.

Recognised payables mainly comprise of amounts owing to other governmental entities.

These payables are carried at cost in the statement of financial position.



Clearing accounts

The typical departmental clearing accounts available in the financial system include the following:

Salary deduction control accounts;

Debit order control accounts;

VAT control accounts;

Telephone control accounts;

Transport control accounts;

Creditors control accounts;

General clearing accounts – accounts created for specific use by departments; and

According to TR 17.1 all accounts must be cleared on a monthly basis. No balances should be

included in the conversion accounts. Where balances exist in the conversion accounts the

department must be able to demonstrate compliance with TR 17.1.2. Some of the accounts listed

above are described in more detail below.

Salary deduction control accounts

These accounts comprise of all salary deductions that must be paid over to a third party on behalf of

an employee. These accounts are credited with the amounts due via the monthly PERSAL interface

and are cleared once the payment is made.

Debit order control accounts

The control accounts comprise of the following:

Debit order control account: any debit orders registered in BAS are automatically credited

against this account on a monthly basis. This account is cleared via the bank reconciliation

process and must be cleared with month and year-end close.

Debit order erroneous account: Any debit orders not belonging to the department will be

posed to this account and is cleared once the bank has rectified the mistake. This account

should have a zero balance at month and year-end close.

Debit order exception account: Any balance on this account shows that the department did

not resolve all the Debit Order exceptions. All debit or credit Debit Order transactions that are

not automatically matched against the Debit Order register are posted to this account. These

transactions must be cleared at month and year-end close.

Telephone control accounts

The telephone control accounts comprise of the following:

Telephone control account: in BAS this account is used for the interface from Telkom on a

monthly basis. Through the interface this account is credited with the amount due to Telkom

and is cleared once the payment is made. This account should be zero with month and year-

end close.



Telephone exception account: any Telkom interface exceptions are posted to this account.

These exceptions should be resolved immediately as this account should also have a zero

balance at month and year-end close.

Telephone erroneous interface account: this account is debited when a department is

charged incorrectly by Telkom. Any amount must be claimed back from Telkom.

Refer to BAS Learner Guide: Telkom

VAT control accounts

These accounts are used for controlling input and output VAT and the calculation of the balance

receivable or payable to SARS (if any).

Transport control accounts

These accounts are used for the government garage interface on a monthly basis. Any error and/ or

exceptions must be cleared on a monthly basis.

The accounts comprise of the following:

Transport interface control account: the transport interface into BAS debits the expenditure

allocations captured against the transport requisitions in the transport Register and credits the

full amount of the interface against this account. This account debited with a BAS payment

that is used to pay the full account to the Payee. This account should be zero with month and

year-end close.

Transport exception account: Any balance on this account shows that the department did not

resolve all the transport interface exceptions. These transactions must be resolved

immediately. This account must have a zero balance at month and year-end.

Creditors control accounts

These accounts comprise of the following:

Allocated invalid before distribution: an auto transaction will post to this account when a

payment is being cancelled before the disbursement process when the user allocation is no

longer valid. This account will have a credit balance and must be cleared before month and

year-end close.

Goods received voucher discount variance: an auto transaction will post to this account when

the Purchase Order / Purchase Order Line is being paid in full or if it is the final payment and

there is a credit balance left in the GRV Suspense account. This account will have a credit

balance and must be cleared before month and year-end close.



Goods received voucher overpaid variance: an auto transaction will post to this account

when the Purchase Order / Purchase Order Line is being paid in full or if it is the final

payment and there is a debit balance left in the GRV Suspense account. This account will

have a debit balance and must be cleared before month and year-end close.

Goods received voucher suspense: All the Creditor Payments, Goods Received Voucher and

Return Voucher / Credit Note transactions will post to this account. This account can have a

debit or credit balance at month and year closure. No journals can be posted to this account,

only auto transactions are allowed.

d) Legislation

TR17.1.2 Should it be necessary, in exceptional cases, to account for revenue and expenditure transactions in a clearing or suspense account because the classification has not been resolved, the accounting officer must ensure that –

(a) the sources of the transactions are readily identifiable;

(b) the amounts included in clearing or suspense accounts are cleared and correctly allocated to the relevant cost centres on a monthly basis;

(c) monthly reconciliation’s are performed to confirm the balance of each account; and

(d) reports are provided to the accounting officer about uncleared items on a monthly basis.

TR 8.2.3 Unless determined otherwise in a contract or other agreement, all payments due to creditors must be settled within 30 days from receipt of an invoice, or in case of civil claims, from the date of settlement or court judgment

26. Payables (non-current)

a) Definition

b) Guidance

Payables are only raised when cash has flown and are not raised if or when one department provides

a service to another department.

Non-current payables comprise of all money owed by an entity which is due in a period longer

than one year after the reporting date.



c) Legislation

TR17.1.2 Should it be necessary, in exceptional cases, to account for revenue and expenditure transactions in a clearing or suspense account because the classification has not been resolved, the accounting officer must ensure that –

(e) the sources of the transactions are readily identifiable;

(f) the amounts included in clearing or suspense accounts are cleared and correctly allocated to the relevant cost centres on a monthly basis;

(g) monthly reconciliation’s are performed to confirm the balance of each account; and

(h) reports are provided to the accounting officer about uncleared items on a monthly basis.

TR 8.2.3 Unless determined otherwise in a contract or other agreement, all payments due to creditors must be settled within 30 days from receipt of an invoice, or in case of civil claims, from the date of settlement or court judgment

D. Net Assets

The statement of changes in net assets between two reporting dates reflects the increase or decrease in its

net assets during the period.

In terms of modified cash basis, the changes in net assets are represented by the following:

Retained funds

Recoverable revenue

Reserves

a) Definition

The main categories recognised in the Statement of Changes in Net Assets are a